Russian legislative and executive branches have passed new acts further restricting the rights of foreign shareholders of Russian businesses.

First, on July 24, 2023 it was announced that President Putin continued to work on the draft of the Decree that would provide the state with the preemptive right to acquire Russian assets of foreign companies exiting Russia.  The draft Decree has not been published yet, but it is understood that the preemptive rights will apply only to (i) the strategic companies specifically listed by the Russian Government, and (ii) the joint stock companies in which the state is also a shareholder.  This would be the next step that allows for the nationalization of the businesses of exiting foreign investors.

Second, on July 20, 2023, the Russian State Duma passed and on August 4, 2023 the Russian President signed into law the bill “On Specifics of Regulation of Corporate Relations in Companies that are Economically Significant Organizations” (the “Law”). The Law allows to exclude foreign shareholders that own shares in Russian blue-chip companies from participation in the corporate governance and in the distributions made by such companies.  The procedure set forth by the Law will allow those Russian companies that are held through off-shores, including those with listings on foreign exchanges, to de facto redomicile into Russia, regardless of any obstacles for such re-domiciliation, that may exist in the jurisdictions of incorporation of the foreign holding companies, including due to sanctions. 


The Law introduces the concept of “Economically Significant Organizations” (“ESOs”). The list of ESOs will be compiled by the Russian Government based on all of the following criteria:

  • At least 50% of the company’s shares are held by a shareholder from an “unfriendly jurisdiction” (“Foreign Holding”) which is more than 50% controlled, directly or indirectly, by citizens or residents of Russia (“Russian Beneficiaries”). The 50% threshold for Russian Beneficiaries can be reduced (i) to 30%, if they control the decisions of the supreme governing body of the Foreign Holding, or (ii) to 20%, if the respective ESO or the Russian Beneficiaries are subject to the blocking sanctions of foreign states.
  • Any of the following financial criteria is met:
    • Revenue of the company is more than RUB 75 billion (~USD 785 million)[1]
    • Workforce number is more than 400 employees
    • Total assets of the company’s group are more than RUB 150 billion (~USD 1.6billion)[2]
    • Taxes paid by the company for the previous year exceed RUB 10 billion (~USD 105 million)[3]
  • The Company is engaged in certain types of strategic activities, including: (i) the operation of the critical information infrastructure, (ii) the implementation of technology or software for publicly important services, (iii) the creation and modernization of high-productivity or high-paying jobs, or is (iv) a city-forming organization, or (v) a systematic financial organization (banks belong to such organizations).

Conditions and Procedure

Foreign Holding’s corporate rights over an ESO may be “put on hold” (the “Suspension”) if, among other things, after February 24, 2022, the Foreign Holding refused to exercise its rights or perform its duties as a shareholder in good faith, complied with restrictive measures imposed by ‘unfriendly’ jurisdictions, or committed other actions that may lead to the suspension or termination of the business of the ESO. Such actions may be evidenced by:

  • Public announcement of suspension of ESO’s business
  • Termination of contracts of the ESO, essential for its business, or suspension of performance of obligations thereunder
  • Reduction of the ESO’s workforce for more than one third
  • Compliance with foreign sanctions
  • Termination of intra-group agreements between the companies of the Foreign Holding group and the ESO, which are essential for its business

The Suspension is executed by the Commercial Court of the Moscow Region upon the claim of (i) the federal authority appointed by the Government, (ii) any direct shareholder of the ESO, (iii) a CEO/board member of the ESO, or (iv) any Russian Beneficiary. The court shall also establish the term of the Suspension, which shall be no longer than till December 31, 2024. (It is expected, of course, that if the foreign sanctions are extended, this term may be extended as well). 

The court may order interim measures while the case is pending before the court, including  suspension of voting rights of the Foreign Holding at the general shareholders meeting of the ESO and suspensions of rights to receive dividends.


Upon the issuance of the final court’s decision on the Suspension, the Foreign Holding’s corporate rights over the ESO are suspended, including:

  • voting rights at the general shareholders meeting of the ESO
  • pre-emptive rights to the shares sold by the other shareholders
  • the right to transfer the shares in the ESO
  • the right to receive dividends

Following the Suspension, the Foreign Holding’s shares in the ESO will be automatically transferred to the ESO itself and shall be registered in its name in the shareholder’s register within one week after the court’s decision.  Essentially, the shares will become treasury shares of the ESO, controlled by the management and the Russian Beneficiary.

Russian Beneficiaries will then have to become direct shareholders in the ESO within 3 months from being notified of the Suspension, taking such number of the Foreign Holding’s shares transferred to the ESO, as is proportionate, on the look-through basis, to their original indirect stake in the ESO. 

Upon the Suspension, the Foreign Holding may petition the ESO for compensation that shall be equivalent to the fair market value of the shares, the rights in relation to which have been suspended.  The procedure for determining and paying such compensation will be established by the Government.  If the Foreign Holding remedies the circumstances that led to the Suspension, it may be reinstated in its corporate rights upon the claim of a shareholder of the ESO.  Shares not distributed to the Russian Beneficiaries will be returned to the Foreign Holding after the end of the Suspension period, if no compensation was paid.

If the Foreign Holding is a public company and: (i) holds 100% of the shares in the ESO, or (ii) holds enough shares to unilaterally decide on the transformation of the ESO into a public company, then the ESO may be transformed into a public joint-stock company by the court upon the Suspension, after which the ESO shall apply to the Central Bank of Russia to register the issuance of the shares and comply with other procedures mandatory for becoming a public company.

To read more about sanctions imposed by the U.S., UK and EU on Russian persons in connection with the Russia-Ukraine conflict and Russian countersanctions, please visit Sanctions Developments Resulting From the Conflict in Ukraine – Russia. If you have any questions concerning this memorandum, please feel free to contact the authors – Yulia A. Solomakhina, Nikita Klepalov, – or your regular contacts at the firm.

[1] At the exchange rate of 96,5668  which is the official USD/RUB exchange rate of the Bank of Russia as of August 8, 2023.

[2] See footnote 1.

[3] See footnote 1.