Investment Partnership

 

On 28 November 2011 the President signed Federal Law No. 335-FZ “On the Investment Partnership.”

The Law introduces a new type of joint venture (general partnership) agreements – the investment partnership agreement. Similarly to general partnerships, an “investment partnership” is not a separate legal entity, but rather a contractual form that allows two or more partners to cooperate in the making of joint investments. This new contractual mechanism is designed to foster venture capital investment in Russia.

Under an investment partnership agreement, two or several partners agree to pool their contributions in order to perform investment activities listed in the Law and derive profits from these activities. Such activities may include both equity investment (acquisition and/ or sale of non-publicly traded shares and participatory interest) and non-equity investment (such as acquisition of bonds and derivative financial instruments).

An investment partnership is comprised of two types of partners: (i) managing partners that are involved in the management of the affairs of the investment partnership; and (ii) ordinary partners. Whilst managing partners are allowed to make both cash and in-kind contributions to the investment partnership, the contributions of ordinary partners are limited to cash. Managing partners may receive a management fee for their management activities. Certain other traits of investment partnerships are set out below:

  • Partners can participate in more than one investment partnership;
  • Foreign and Russian legal entities, individual entrepreneurs, non-profit organizations (including state corporations and pension funds) and foreign organizations that are not legal entities under the law of a foreign state, may be parties to an investment partnership agreement;
  • Foreign corporations that do not have a permanent representative office in Russia may not act as managing partners;
  • Partners may make contributions to the partners’ common property step-by-step;
  • Although the actual provisions of the investment partnership agreement are confidential, the parties need to disclose the fact of the existence of the investment partnership;
  • The number of partners of an investment partnership may not exceed 50;
  • The term of an investment partnership agreement may not exceed 15 years, but it can be entered into until the occurrence of an event stipulated in the investment partnership agreement;
  • Partners are jointly and severally liable with all their property for non-contractual obligations and contractual obligations assumed in relations to the parties that are not entrepreneurs;
  • Ordinary partners are liable for the contractual obligations of the investment partnership assumed in relation to the entrepreneurs to the extent of the value of their respective contributions to the partners’ common property. If the common property is insufficient, the managing partners jointly and severally bear subsidiary liability for such obligations of the investment partnership.

An investment partnership agreement must be notarized.

The Law will enter into force on 1 January 2012.

For further information please contact Igor Ostapets or Irina Dmitrieva in the Moscow office of White & Case, tel + 7 495 787 3000 .

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