WHICH OWNERSHIP STRUCTURE CAN PROTECT BUSINESS FROM SANCTIONS?
The restrictions on using foreign ownership structures for Russian assets and sanction pressure on Russian businessmen led to a surge of interest in structuring ownership via closed-ended funds (CEFs), also known as closed-ended mutual funds. Information about the beneficiary of the units (shares) is not available in public: it is kept in a closed register of shareholders. In addition, the main advantages of CEFs compared to other forms of ownership, including joint stock companies (JSCs), are as follows:
- Assets are better protected from debt, fraud and corporate conflicts.
- Raising debt finance is relatively easy.
- The tax burden is significantly reduced.
- Investment efficiency increases.
More information about these advantages is on the cards below:
Shares, interests or assets of a company are partially or fully transferred to a CEF in exchange for CEF shares. CEF is managed by a management company (MC). You can use an existing MC, buy a ready-made one specifically for the needs of your business, or establish your own. The best option is to contract an existing MC: since the activity of any MC is subject to licensing, creating and maintaining your own MC is quite an expensive and cumbersome process.
Actions of the MC with the property of CEF are governed by the rules of trust management and controlled by a specialized depositary, investment committee consisting of shareholders of the fund and the Central Bank of the Russian Federation.
Although CEF is not a legal entity, a management and control system similar to those used in traditional corporate structures can be built within a CEF, with management de jure separated from beneficial owners, and the degree of participation of different investors in fund management can vary from maximum (direct management) to minimum (only control).
Disadvantages of CEF are as follows:
- 1More complicated administrative procedures as compared to a limited liability company (LLC) or JSC, for example, preliminary approvals with the specialized depositary for actions with the CEF property are required: the special depository shall ensure that the planned actions comply with the rules of fiduciary management, investment declaration and legal regulations and do not prejudice the interests of shareholders.
- 2There are restrictions on investments in certain assets, such as art, jewelry, certain raw materials or commodities.
- 3Relatively high entry threshold: the value of assets from RUB 50 million.
You can find more details about CEF in our cards below:
TA Legal Consulting advises companies and their beneficial owners on the transition to a CEF ownership structure.
In particular, we:
- Assess the current ownership structure for risk related to sanctions, corporate conflicts and possible asset loss.
- Develop a proposal for the optimizations of the ownership structure, including, if necessary, СEF.
- Support the transition to the new ownership structure, including, if a CEF is used, assisting in contracting a management company.
We cooperate with Asset Management Company Olymp Capital, which can register and manage your CEF.
Olymp Capital is licensed by the Central Bank of the Russian Federation (license No. 21-000-1-1 048 dated July 20, 2021) to carry out activities related to the management of investment funds, mutual investment funds and non-state pension funds.
Since 2021, Olymp Capital has formed and currently manages six combined CEFs with a net asset value over 11.35 bn rubles and over 170,000 sq.m. of real estate.
Olymp Capital works with INFINITUM Specialized Depository. INFINITUM was established in 2000 and is one of the best in the market. In April 2024, INFINITUM received NAUFOR award "Specialized Depository of the Year" for the third time.
The owner and CEO of Olymp Capital Yaroslav Bobrovich was Vice President and CFO of Major Group of Companies for more than 15 years and managed Avtotorgbank for 9 years (now he is a member of the bank's Board of Directors).