Corporate Governance 2019

Last Updated June 26, 2019

Belarus

Law and Practice

Authors



Stepanovski, Papakul and Partners Attorneys at Law is one of the leading law firms in the Republic of Belarus. Its corporate and commercial law practice includes a team of highly qualified lawyers with ten to 20 years of professional experience. Out of the team's total of 28 lawyers, nine are regarded as leading national specialists, and the extent of the practice enables it to assist with large projects to be completed within tight deadlines. Since 2011, the firm has advised on several EBRD, IBRD, IFC projects in the Republic of Belarus and has gained extensive experience working on complex projects and holding negotiations with government authorities, state organisations, investors, financial institutions, and other stakeholders. The practice has also assisted with M&A transactions, legal due diligence, launching of large foreign trade marks and supported investment projects.

The principal and most commonly used forms of corporate/business organisations in Belarus are joint stock company, limited liability company, additional liability company and unitary enterprise.

Joint Stock Company

This can be open or closed. The shares of a joint stock company may be publicly traded, with no limitation on the number of shareholders and no restriction on whether they are legal entities or individuals. The shares of a closed joint stock company are placed and circulated only among its current shareholders and/or persons determined in accordance with the relevant legislation so that the company has no more than 50 shareholders, with no possibility to carry out an open subscription or otherwise offer its shares to the general public. If the number of shareholders exceeds 50 and is not reduced, a closed joint stock company must be converted into an open joint stock company within one year or be subject to judicial liquidation.

Limited Liability Company

In a limited liability company, the number of participants may not exceed 50 and the charter capital must be divided into stakes of a size specified by the statute of the company. The capital is declared and the stakes are paid by the company's participants as specified by the statute. A limited liability company does not issue shares.

Additional Liability Company

This is similar to a limited liability company, but its participants are jointly and severally liable for the obligations of the company in proportion to their contributions to the charter capital and within the limits determined by the statute of the company, but no less than the limits established by the legislative acts.

Unitary Enterprise

The title to the property of a unitary enterprise belongs to a single founder/owner, and the property may not be distributed or divided into contributions (shares). Unitary enterprises may be in private or state property.

The principal sources of corporate governance requirements for companies are:

  • the Civil Code of the Republic of Belarus; and
  • the Law of the Republic of Belarus No 2020-XII on Economic Companies (LEC).

There is also a Set of Rules on Corporate Governance which is not mandatory for companies, ie, these rules are recommended so that companies can develop their own rules of corporate governance.

There are no specific rules of corporate governance for companies with publicly-traded shares.

However, there are special corporate governance requirements for companies in which the state has a share or is a participant.

At least two (with no maximum limit on the number) representatives of state are appointed to the supervisory board of the shareholders general meeting, and a special procedure is followed as to how the position of the state representatives shall be formed and approved on a range of matters before voting. Moreover, a state representative may participate in the discussion of other matters with the chief executive officer.

Other shareholders have no influence on the selection and appointment of state representative candidates to the supervisory board. A representative is appointed by a decision of a state body, state organisation, local executive or administrative body authorised to manage the shares of this particular company belonging to the Republic of Belarus and/or the administrative territorial unit, upon co-ordination of the State Property Committee. Such decision is adopted prior to the shareholders general meeting, the agenda of which includes the election of members to the supervisory board.

The state may replace its representatives at any time.

There is no further relevant information.

The theme of corporate governance is slowly moving into the limelight, as several technical assistance programmes of international organisations and pilot projects are to be launched to improve the system of corporate governance in state-owned, state-controlled companies.

In a joint stock company, limited liability company or additional liability company, the supreme governing body is the shareholders general meeting. If a company has one participant/shareholder, such participant/shareholder exercises the powers of the shareholders general meeting.

The following governing bodies are also formed in accordance with the LEC:

  • a supervisory board is obligatory in a joint stock company with more than 50 shareholders, in open joint stock companies whose shares belong to the state, and in other cases stipulated by legislation. A supervisory board is also created if the statute of a company so provides;
  • an executive body could be a collective executive body (management board or directorate) and/or a one-person executive body (director or director general). The powers of the director or director general may be transferred to another commercial organisation (managing company) or to an individual entrepreneur (manager) under contract.

A unitary enterprise has only the head, who is appointed by the owner of the property and is accountable to the owner. If an individual owns the property of a unitary enterprise, such individual is fully entitled to exercise the functions of the head. The powers of the head of a unitary enterprise may be transferred, by the decision of the owner of the property, under contract to another commercial organisation (managing company) or to an individual entrepreneur (manager).

The shareholders general meeting makes decisions on matters specified by the LEC and/or the statute of the company. Several matters are reserved by the LEC for the shareholders general meeting and cannot be assigned to other bodies. These include:

  • amendment of the statute of the company;
  • amendment of the charter capital;
  • election of members of the supervisory board;
  • approval of annual reports;
  • distribution of profits and losses; and
  • reorganisation or liquidation of the company.

Decisions on other matters, which are not reserved for the shareholders general meeting, may be referred to the supervisory board or to the single executive body, in cases defined by the LEC.

The supervisory board is responsible for the general management of the company, and the LEC and/or the statute of the company define the matters that are reserved for it, including but not limited to:

  • development of strategy;
  • approval of the annual financial and business plan;
  • making decisions on the issuing of securities, except for shares;
  • the use of reserve and other funds; and
  • the selection of an auditor.

When the company does not have a supervisory board, the general rule is that the shareholders general meeting shall perform its reserved functions, except for limited matters specified by the LEC or the president of the Republic of Belarus, which need to be decided by the executive body.

The executive body makes decisions on all matters which are not included in the competence of the other governing bodies, as defined by the LEC and/or the statute of the company. The competence of the executive body of a company includes routine management of its activities.

If there is a collegial and sole executive body, the statute must clearly delineate the competence of each of them. These bodies should not duplicate each other in their functions.

Shareholders General Meeting

The shareholders general meeting takes decisions by a simple majority of votes (more than 50%) of those present at the meeting, except in cases stipulated by the LEC and the company statute, where a qualified majority or unanimity is required at the meeting or among all participants/shareholders. For example, not less than three quarters of the votes of those present at a meeting is required to approve local normative legal acts of the company. Members of the supervisory board may be elected by cumulative voting.

In a joint stock company, the number of votes shareholders have is proportionate to the number of shares they have. This is also the general rule for a limited liability company and additional liability company, where the number of votes a participant has is proportionate to their respective share in the charter capital. However, a different number of votes, disproportionate to their share in the charter capital, may be given to participants of a limited liability company or additional liability company via agreement between them, which shall be reflected in the company statute.

The shareholders general meeting may have an open vote or voting by ballot. An open vote by cards may be stipulated by the statute. Except for in a limited number of cases, the LEC permits absentee voting to decide issues at a shareholders general meeting.

Decisions taken by the shareholders general meeting are announced at that meeting or notified to participants not later than ten days after the date of signing of the minutes of that meeting, in accordance with the procedure established by the statute.

If a company has one participant/shareholder, such participant/shareholder shall sign resolutions in a written form on matters that fall within the competence of the shareholders general meeting.

Supervisory Board

The supervisory board makes decisions at its meetings by a simple majority of the members present at the meeting, unless a larger number of votes is specified by the LEC and/or by the statute.

At least half of the board's elected members are required to be present to form a quorum at the meeting, unless a larger number is specified for a quorum by the statute.

Each member of the board has one vote, unless otherwise stipulated by the statute.

The chairman of the board has the casting vote in cases where the vote is split equally between members of the supervisory board, unless otherwise stipulated by the statute. Decisions of the supervisory board are documented in the minutes of the meeting, and the minutes are signed by the chairman.

Decisions of the supervisory board of a company may be made by polling its members, if provided for by the statute.

Executive Body

The one-person executive body of a company or the person heading the collective executive body issues orders (executive orders) and gives instructions. Decisions of the collective executive body are made at meetings and minutes of the meetings are drawn up. The minutes of meetings of the collective executive body are signed by the person heading that body.

The supervisory board of a company consists of its members and the chairman, who is elected from among the members of the board, by the members of the board.

Members of the supervisory board of a company have similar roles when the board performs its functions. However, the chairman has a special role in some cases:

  • the chairman arranges the work of the board, and convenes and chairs its meetings; and
  • the chairman has the casting vote when the votes of the members of the board are equally split, unless otherwise stipulated by the statute.

Only individuals can be members of the supervisory board, and these may include individuals other than participants/shareholders.

The person exercising the powers of the one-person executive body of a company, or the person heading the collective executive body of a company, is not entitled to be a member of the supervisory board. However, members of the collective executive body of a company can be members of the supervisory board of that company, as long as the number of such members does not exceed one quarter of the total number of members of the board.

The statute of a company may provide for the obligatory inclusion in its supervisory board of a representative of the employees and/or trade union.

The legal requirements for the composition of a supervisory board for joint stock companies are as follows. The supervisory board shall have:

  • at least five members if a joint stock company has no more than 1,000 shareholders with voting shares;
  • at least seven members if a joint stock company has more than 1,000 shareholders with voting shares; and
  • at least nine members if a joint stock company has more than 10,000 shareholders with voting shares.

In companies whose shares are owned by the Republic of Belarus and/or by its administrative-territorial unit, at least two representatives of state are appointed to the supervisory board.

Members of the supervisory board are elected by the shareholders general meeting at the annual meeting. The members of the board may be re-elected an unlimited number of times.

Cumulative Voting

The following rules apply:

  • if there are more than 100 shareholders in a joint stock company the supervisory board is elected by cumulative voting, unless another type of voting has been provided for by the company charter;
  • if a joint stock company has more than 1,000 shareholders, the supervisory board may only be elected by cumulative voting; and
  • in other cases, cumulative voting to elect members of the supervisory board could be provided for by company statute.

The charter of the company may specify the number of independent directors to be elected. A special regulation is in place for banks, where at least two independent directors shall be elected to the supervisory board of a bank.

State Representatives

In companies in which the state is one of the shareholders, at least two state representatives are appointed to the supervisory board. A representative is appointed by the decision of a state body, state organisation, local executive or administrative body authorised to manage the shares of this particular company belonging to the Republic of Belarus and/or the administrative-territorial unit, in co-ordination with the State Property Committee. Such decision is adopted prior to the shareholders general meeting, the agenda of which includes the election of members of the supervisory board.

Termination of Powers

The powers of members of the supervisory board may be terminated at any time:

  • by the decision of the shareholders general meeting (if members were elected by cumulative voting, early termination of powers will apply to all board members);
  • by the decision of a board member, if such member files a respective application about termination of powers;
  • in the case of the death of a member, declaring him/her dead, or recognising him/her as incapable or missing; and
  • by a decision of the state, at any time, to replace its representatives on the board.

Election of Executive Members

The person exercising the powers of a one-person executive body of a company (also referred to as the director) and members of the collective executive body of a company, including its head, are elected by the shareholders general meeting or by the supervisory board, in accordance with the statute of the company.

The person exercising the powers of a one-person executive body of a company, and also members of the collective executive body of a company, may be elected from among non-participants in the company.

Members of the supervisory board, management board, or an individual exercising the powers of a one-person executive body are obliged to inform the shareholders general meeting and/or the supervisory board, and provide information about a legal entity (unitary enterprise) if:

  • they independently or with their relatives (as defined in the LEC) own 20% or more of the capital of the legal entity;
  • they independently or with their relatives (as defined in the LEC) own property that is part of the legal entity;
  • they or their relatives (as defined in the LEC) hold positions in the legal entity.

Directors shall inform the company about transactions in which they may be considered to have an interest, as there is a special procedure for handling such transactions. The board (when it has authority under the LEC and statute of the company) approves such a transaction if the majority of its members who do not have an interest in the transaction vote in favour of this. If under the LEC and statute of the company, the shareholders general meeting approves such a transaction, the decision requires that the majority of the shareholders should have no interest in the transaction.

Unless otherwise provided for by legislative acts, the directors (members of the management board or an individual exercising the functions of a one-person executive body) may hold positions in the executive bodies of other companies if the shareholders general meeting has given its consent to this, or subject to the requirements stipulated by the company statute.

The supervisory board is responsible for general management and determines the priority areas of the company’s activities, as well as exercising functions as defined by the LEC and/or the statute of the company. See also 3.2 Types of Decisions Made by Governing Bodies, above.

The executive body of the company (sole or management board) is responsible for management of current activities.

The director, as a person who by virtue of the law or constituent documents of a company acts in its name, must operate in the interests of the company, in good faith and reasonably.

The supervisory board and executive bodies owe their duties to the shareholders general meeting or, if a company has one participant/shareholder, the supervisory board and executive bodies owe their duties to this participant/shareholder.

The director, as a person who, by virtue of the law or constituent documents of a company, acts in its name, must act in the interests of the company, in good faith and reasonably.

In the exercise of their rights and the performance of their duties, the members of these bodies:

  • must act on the basis of openness (disclose information to the shareholders general meeting and the supervisory board in accordance with the requirements of the LEC, other legislation, the company charter and/or local regulatory legal acts of the company, as well as other information which may influence the performance of their powers) in the interests of the company, in good faith and reasonably;
  • must ensure equal and fair treatment of all shareholders;
  • shall not use the property of the company, or allow it to be used, in a way that is not in accordance with the charter of the company or decisions of the shareholders general meeting and/orsupervisory board, or for personal needs; and
  • shall not refrain from the fulfilment of their duties as stipulated by the LEC and the statute of the company.

State representatives who participate in the work of the company’s bodies act in line with legislation and the statute of the company, based on the need to protect the economic interests of the state in the company's operations and ensure the efficient operation of the company, and are guided by the written instructions of the body exercising ownership control.

Members of the supervisory board, in accordance with the competence thereof, are liable before the company for losses caused to the company by their guilty action or omission, in accordance with the procedure established by the statute of the company and by legislation.

If several members of the supervisory board breach their duties, they will be jointly and severally liable to the company.

If members of the board refuse to reimburse the losses voluntarily, an action to compensate the losses may be brought in court by a decision of the:

  • supervisory board, taken by a majority of not less than two thirds of the votes of all members of the supervisory board; or
  • shareholders general meeting, taken by a majority of not less than three quarters of the votes of the shareholders present at the meeting.

Where members of the supervisory board approve a transaction with affiliated persons, in their interest and to the detriment of the company, they and the affiliated persons involved shall be jointly and severally liable to the company for the damages incurred by the company.

Unless otherwise provided for by legislative acts or a contract, a director shall compensate losses caused to the company, at the demand of the owner of property (shareholders/participants) in the company. The director, acting on the basis of a labour contract, is liable in accordance with the labour legislation of the Republic of Belarus in a case of material damage to the company. The director may bear disciplinary, administrative and – in some cases – criminal liability, for poor performance of their duties.

A director, acting on the basis of a labour contract, is liable in accordance with the labour legislation of the Republic of Belarus, in the case of material damage to the company.

The general rule is that members of the supervisory board who voted against a decision which caused damage to the company, or did not take part in such voting, are not liable.

Members of the supervisory board who approved the transaction with affiliated persons, in their interest and to the detriment of the company, may be exempt from liability if they can prove that they acted properly in compliance with the requirements of members of governing bodies of the company, established by the LEC.

Remuneration and compensation of expenses to members of the supervisory board are determined by the shareholders general meeting. The latter also determines the terms of remuneration of members of the executive bodies of the company, or the amount payable for the services of the managing organisation (manager), although it is entitled to delegate this authority to the supervisory board.

There is a special regulation for:

  • state representatives participating in the work of bodies of companies where the state is one of the shareholders. Their remuneration depends on profitability and shall not exceed the limit set in legislation; and
  • the salary paid to a director in a state-controlled organisation. The ratio between the average salary of the director and the average salary at the company shall not exceed 8:1.

Companies do not have an obligation to make any public (or other) disclosures in relation to the remuneration, fees or benefits payable to their directors and officers.

Shareholders of a company make up the shareholders general meeting, which is the supreme governing body of a company and the one to which the other governing and controlling bodies of the company are accountable. Therefore, the supreme governing power in a company is embodied in its shareholders.

The shareholders general meeting is not a permanent governing body and is convened according to certain rules, compliance with which is necessary for the legitimacy of its decisions.

Besides the matters reserved for the shareholders general meeting, legislation allows for the possibility to vest the shareholders general meeting with the authority to make decisions on other issues, as defined in the statute of the company.

A company is obliged to hold an annual shareholders general meeting to approve annual reports, annual accounting (financial) statements (data of the journal of incomes and expenses), as well as distribute profits and losses, by not later than 31 March each year.

A shareholders general meeting is convened and held by the authorised body of the company (supervisory board or director). An extraordinary shareholders general meeting may also be called by other bodies or participants in the company, in cases established by the LEC.

A shareholder who has no less than 10% of the votes (unless a lower threshold has been provided by the statute) may demand to call the shareholders general meeting.

The shareholders general meeting is held according to the procedure established by the LEC and the statute, and in the part not regulated by them, by local normative acts of the company approved by the shareholders general meeting and/or by decisions of that meeting.

Unless otherwise specified by the company charter, notice of the shareholders general meeting shall be given not less than 30 days prior to the meeting.

The standard quorum of the shareholders general meeting is 50% or more of the votes of all shareholders, unless a higher threshold has been established by the statute of the company.

Shareholders may bring a claim to:

  • invalidate a major transaction made by a company if it was made in violation of the requirements provided by the LEC;
  • invalidate a transaction made by a company with affiliated persons, if it was made in violation of the requirements provided by the LEC and/or if it violates the legitimate interests of the company and its shareholders;
  • request information about the activities of a company, if not provided by the company;
  • invalidate the decision of the shareholders general meeting, if such a decision was passed in violation of the requirements provided by the LEC, or other legislation or statute of the company, and it violates the rights and/or legitimate interests of the shareholders.

For additional information, see also 4.8 Breach of Directors' Duties, above.

Within five days after the acquisition of 5% or more of common (ordinary) shares, a person must disclose information, including personal data, on the acquisition and on any change resulting in a holding of more than 5, 10, 15, 20, 25, 30, 50 or 75%.

Prior to the purchase of more than 50% of common (ordinary) shares (with the exception of acquisitions in the process of shares placement), or a number of shares resulting in a holding of more than 50% of common (ordinary) shares, a person shall disclose information, including personal data, about such intention. And prior to the purchase of common (ordinary) shares of a company, a person who has access to undisclosed information on the securities market in relation to this company shall disclose the information, including personal data, about such intention. A person who becomes a holder of more than 50% of common (ordinary) shares of an open joint stock company, not as a result of transactions described in this paragraph, shall disclose information on their intention to buy all the shares of that open joint stock company not belonging to them.

A company prepares annual statements and, in cases stipulated by the legislation of the Republic of Belarus, interim (quarterly, monthly) statements.

The reporting period is a calendar year (1 January – 31 December). Statements shall be drawn up in BYN in accordance with the forms approved by the ministry of finance of the Republic of Belarus, and shall be signed by the head of the company.

However, companies that are eligible and use a “simplified” taxation system, are exempt from the obligation of accounting and financial reporting and may keep records in a simplified book, registering income and expenses, or have a standard accounting system and prepare the reports.

No later than 31 March each year, annual statements shall be prepared, submitted and approved by the shareholders general meeting and the founder of the company, and submitted to the tax authority.

Companies that issue securities (emissive securities) shall prepare quarterly reports and publish quarterly and annual reports, inter alia at the Integrated Portal of the Financial Market, and submit them to the securities department of the ministry of finance of the Republic of Belarus.

Companies registered at the Belarusian Currency and Stock Exchange, whose securities are traded, shall also submit quarterly and annual reports to the Belarusian Currency and Stock Exchange.

Companies that are issuers of bonds and securities, and joint stock companies, are required to present periodic reports and information about operations in the securities market. These reports have a section about the use of the Rules on Corporate Governance by companies, and information about the composition of companies' management structures.

Periodic reports are not submitted if the decision to liquidate (wind up) the company has been taken, or insolvency (bankruptcy) procedures have been initiated.

The information in the Unified State Register of Legal Persons and Individual Entrepreneurs is entered by the registering authority based on information that is included in an application when: registering a legal entity, making changes to the constituent documents, informing about a change of director, changing the registered address, starting liquidation bankruptcy procedures in relation to a legal entity, changing the shareholders of a limited liability company, founding a unitary enterprise, recording the main type of commercial activities of a company, etcetera.

Any person (organisation) can obtain information from the register regarding a legal entity by sending a request to the registering authority, or directly to the Unified State Register, at the ministry of justice of the Republic of Belarus. The information is provided in response to the request and is subject to the payment of state duty. The personal data of shareholders is not provided, as apart from the name, surname and country of citizenship, information about the shareholders of joint stock companies is not public.

An external auditor shall be appointed in connection with financial statements, where stipulated by legislation. Joint stock companies, banks, insurance companies, stock exchanges, professional participants in the securities market, High Tech Park residents, and companies whose revenue exceeds EUR5 million shall arrange independent auditors to give an opinion on their annual statements.

An external auditor acts on the basis of a service contract. The supervisory board (or shareholders general meeting, sole shareholder or founder, if a company has no supervisory board) appoints an external auditor and approves the terms of contract and remuneration of the auditor.

Legislation also provides for an exemption from a mandatory external audit (eg, for farmers and agricultural co-operatives).

There are no requirements for directors in connection with the management of risk and internal controls in the company in general. However, such requirements exist for certain types of organisations, inter alia banks.

Stepanovski, Papakul and Partners Attorneys at Law

Kuibyshev Str.16
4th Floor 220029
Minsk
Belarus

+375 17 269 55 00

+375 17 204 86 72

info@spplaw.by www.spplaw.by
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Law and Practice

Authors



Stepanovski, Papakul and Partners Attorneys at Law is one of the leading law firms in the Republic of Belarus. Its corporate and commercial law practice includes a team of highly qualified lawyers with ten to 20 years of professional experience. Out of the team's total of 28 lawyers, nine are regarded as leading national specialists, and the extent of the practice enables it to assist with large projects to be completed within tight deadlines. Since 2011, the firm has advised on several EBRD, IBRD, IFC projects in the Republic of Belarus and has gained extensive experience working on complex projects and holding negotiations with government authorities, state organisations, investors, financial institutions, and other stakeholders. The practice has also assisted with M&A transactions, legal due diligence, launching of large foreign trade marks and supported investment projects.

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