Starting from March 1, 2022 the Russian civil legislation affords individual citizens the possibility of establish “personal foundations” (the “PF”) for the purpose of efficient management of their assets, including through exercise of the right of inheritance.
The possibility of establishment of a PF allows for keeping of capital inside the RF because Russian citizens will no longer have to establish private foundations or trusts in countries that have become “unfriendly” ones (note: a “foundation” is an organization which is individual’s heir and manages property on its own; a “trust” is a deed whereby property is put in trust with a third party). Creation of a PF may become a better alternative for Russian citizens entered in sanctions lists.
Besides allowing for preservation of property and avoidance of suspension of PF’s operations due to founder’s death, a PF will be able to prevent conflicts arising from further transfer of property to beneficiaries.
A PF is a unitary non-profit organization. The objective of a PF is management of property transferred to it by an individual. To establish a PF an individual (founder) is to transfer to it property the value of which is at least 100,000,000 rubles (according to assessment of its market value). No gratuitous transfer of any property to a PF by other persons is allowed. A PF may be established for a definite time or for an indefinite time for the purpose of management of property when the individual is still alive and after his/her death.
A PF may engage in business meeting the objectives determined by the PF Charter and required for the achieving of those objectives. For doing its business a PF may establish or participate in business companies.
PF’s founder may provide for in the Charter that after his/her death the PF will continue its operations in accordance with the approved Charter and PF Management Terms.
PF’s founder determines number and names of members of PF’s managing bodies and their competence. After founder’s death all matters relating to the formation of the managing bodies and their functions are regulated only by the PF’s Charter and Management Terms.
PF’s Managing Bodies are: the single-member executive body (CEO); the collegial executive body; the superior collegial body; and the board of trustees maintaining control over PF’s operations. The superior collegial body and the board of trustees may include the founder himself and members of the founder’s family. The founder can make a provision for establishment of PF’s supervisory body whose powers may include control over activities of PF’s managing bodies, prior coordination of PF’s legally significant actions, taking of a decision on early termination of powers of the single-member executive body of the PF who has failed to comply with his obligation to act reasonably or in good faith in the interests of the PF and/or its beneficiaries, and on appointment of an alternate single-member executive body of the PF.
It is worth mentioning that the founder is held secondarily liable for obligations of the PF in case of insufficiency of its assets while the PF is held secondarily liable for obligations of the founder during three years from the date of establishment of the PF. This term may be extended by a court resolution in case the creditors did not have an opportunity to present their claims to the founder of the PF.
It may be important for the founder that he/she has the right to determine in advance who and in what succession will manage his/her property after his/her death; to personally check efficiency of management of the PF created by him/her, to identify and eliminate the existing shortfalls in time, to change the list of persons appointed to the PF’s managing bodies, and to provide for rules and terms of PF’s business, including those to be effective after his/her death.
AGP team has gained insight into certain practical aspects and principal issues of establishment and registration of a PF.
Documents Required for the Establishment of a PF
A PF may be founded by either by one individual wishing to establish a PF or by several individuals, e.g. spouses who are legally married.
One of the principal documents en route to the establishment of a PF is a Resolution of the sole founder or Minutes of the Meeting of Founders on the establishment of a PF.
Other documents significant for the creation of a PF are: Charter, Report of an independent appraiser of the property being contributed by the founder(-s) to the PF, setting out the assessed market value of the property, and a Permit for use of individual’s personal name in the PS’s name (if applicable).
Please note that under the RF Civil Code a PF’s founder may approve PF’s Management Terms and other internal documents (e.g., Regulations of the Bard of Trustees; Regulations of Operations Audit) of the PF.
We recommend approving PF Management Terms binding on all PF managing bodies, including beneficiaries, who will be entitled (after founder’s death) to PF’s property and, unless otherwise provided for by PF Management Terms, to further manage PF’s activities. Such beneficiaries may be current members of the founder’s family, representatives of future generations or any other persons mentioned by the PF founder. The founder may designate such persons by their names or determine the procedure for identifying them. The founder may provide for flexible conditions for the beneficiaries, upon occurrence of which payments or other form of financial assistance may be made or extended, for instance education or medical services may be paid for or investment projects financed. The founder himself may also be a beneficiary of the PF, if the PF’s Charter so provides. Non-profit legal entities may also be beneficiaries.
It is worthy of being noted that the Resolution on the Establishment (Minutes of Founders’ Meeting) of the PF, PF Charter and Permit for use of individual’s personal name in the name of the PF (if applicable) are to be certified by a Notary.
Documents to be produced to a Notary are founder’s valid Russian passport, marriage certificate or founder’s statement to the effect that at the time of establishment of the PF he/she is not formally married, premarital agreement (if any) and spousal consent (if the founder is married) to the establishment of the PF and transfer to it of their common property.
As mentioned above, PF Management Terms are not among mandatory documents required at the time of establishment of a PF. PF Management Terms may be certified by a Notary both at the time of establishment of a PF and after its State registration.
Regional offices of the RF Ministry of Justice are currently the registering authorities for PFs.
Documents to be Filed with the Regional Office of the RF Ministry of Justice for State Registration
a. At the Time of Establishment of a PF
Provisions of the Law on State Registration of Legal Entities and Individual Entrepreneurs (N 129-ФЗ dd. August 8, 2001), Notary Law (N 4462-I dd. February 11, 1993), and Non-Profit Organizations Law (N 7-ФЗ dd. January 12, 1996) are applicable to the procedure for State registration and to requirements with respect to the list of documents to be filed for State registration of PFs (non-profit organizations within which PFs fall).
For State registration of establishment of a PF the following documents ate to be filed with the regional office of the RF Ministry of Justice:
Please note that a Report on use of PF’s property is not subject to publication, save as otherwise provided by PF’s Terms of Management.
b. During PF’s Existence (e.g. in Case of Changes in its Assets)
PF Charter, PF Management Terms and other PF’s internal documents may be amended by the founder during his/her entire lifetime.
Amendments to PF’s Charter are also to be registered with the regional office of the RF Ministry of Justice. State registration of amendments to PF Charter shall be performed in accordance with the same procedure and within the same timelines as provided for State registration of establishment of a PF.
Documents to be filed with the regional office of the RF Ministry of Justice:
Amendments to PF Management Terms and other PF’s internal documents should be certified by a Notary. Since PF Management Terms are not subject to State registration, Amendments to PF Management Terms are not required to be filed with the regional office of the RF Ministry of Justice for State registration either.
Under the currently valid special rules of the RF Civil Code, concerning PFs, information on content of PF Management Terms (amendments thereto) and content of other PF’s internal documents is not subject to disclosure and is confidential.
After PF founder’s death, PF Charter, PF Management Terms and other PF’s internal documents, approved by the founder while alive, cannot be amended save for amendments made by a court resolution where management of the PF on the previous terms has become impossible for reasons the occurrence of which could not have been envisaged at the time of establishment of the PF.
Requirements to Content of Documents Subject to State Registration
The PF Charter is to include:
PF Management Terms should establish:
Generally, PF Management Terms are confidential. Exceptions may arise from PF’s Charter and/or provisions of the RF Civil Code (e.g. the right of the beneficiary to familiarize itself with the portion of the PF Management Terms, setting out the procedure for determining and appointing PF managing bodies, provisions on transferring to the beneficiary of all or part of PF’s assets and description of circumstances upon occurrence of which such transfer is to be effected).
Conclusion
A new form of exercising of the inheritance rights guaranteed by the RF Constitution has become available to individuals. The opportunity of establishing of a living PF, afforded by lawmakers, is intended to make the Russian jurisdiction more attractive for internal and external high net worth private investors. Without having to go to foreign jurisdictions individuals will be able not only to preserve and increase their wealth in the RF but also to endow specific individuals with material security, preserve workplaces, support various projects, including charitable ones, and oragnizations.