In-gratis transfer of property among the principal and subsidiary companies

We would like once again to draw your attention to the position of the Supreme Court authorities concerning the issue of possibility of an in-gratis transfer of property among the principal and subsidiary companies.

The existing earlier arbitration court practice which permitted a possibility of entering into in-gratis transactions among commercial companies was developed and supported by the Presidium of the Supreme Arbitration Court of the Russian Federation. The following legal attitudes have been formed:

  1. Not only an in-gratis nature of transfer of property but an obvious intention of a grantor to do a favour to a grantee is recognized as a qualified characteristic of a donation agreement. And precisely this intention, and not any other grounds for transfer of property emerging out of economic relations of parties to the agreement, is typical for a donation agreement. Therefore, a transaction involving transfer of property entered into between a principal and subsidiary companies can not be qualified as a donation transaction which is prohibited in compliance with sub-clauses 4, clause 1 of Article 575 of the Civil Code of the Russian Federation.
  2. From the economical point of view, the principal and subsidiary companies represent a single business entity. Taking into account the common goals of business activity of the principal and subsidiary companies for implementing of which a re-distribution of property among such companies may be required, a qualification of any transactions on in-gratis transfer among such entities as a donation is inaccurate. And, moreover, an absence of any direct counter proposal should be regarded a specific feature of relations among the principal and subsidiary companies.
  3. The regulations of the Civil Code prohibiting a donation between the commercial companies seek to protect the interests of the participants of the legal entity – donator, so that an alienation of property owned by such legal entity would be carried out for an equivalent counter proposal. However, upon the transfer of property from a subsidiary company to a principal company (and vice versa) the interests of minority participants of the company which may be infringed by such transactions, are protected by special regulations of joint stock companies law (for instance, the right to demand a purchase of shares or purchase by the company of a stake or part of the stake in the charter capital, on approval of transactions in which there is an interest of the business company).

Thus, the transactions on in-gratis transfer of property between the principal and subsidiary companies do not contradict the pertinent civil legislation. In case of necessity, such transaction may be registered in writing taking into account the regulations of Clause 2 Article 421 of the Civil Code that the parties to the transaction may enter into an agreement both envisaged and not envisaged by law or other legal acts.

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