The State Duma of the Russian Federation has adopted in the second and third readings Draft Law No. 579819-8
“On Amendments to Part One and Article 846 of Part Two of the Civil Code of the Russian Federation”.

This draft law is notable for proposing the abolition of the existing ban on forming corporate structures commonly referred to as «matryoshkas.»

What are «matryoshka» structures?

In corporate terminology, a «matryoshka» structure refers to a chain of legal entities where:

• a company has as its sole participant (or shareholder) another legal entity,
• which, in turn, is wholly owned by a third legal entity,
• thus creating a nested ownership structure.

Key proposed amendments

The bill introduces the following wording into the Civil Code of the Russian Federation:

• A legal entity (business company) may be established by a single person, who becomes its sole participant, unless otherwise provided by the Civil Code or other applicable laws; and
• A business company may have as its sole participant another business company wholly owned by one person, unless otherwise restricted by the Civil Code or other applicable legislation.

Related legislation under review

Another legislative initiative addressing this issue — Draft Law No. 797057-8 — is also currently under consideration by the State Duma.
“On Amendments to Article 10 of the Federal Law on Joint-Stock Companies, Article 7 of the Federal Law on Limited Liability Companies, and on the Repeal of Certain Provisions of Legislative Acts of the Russian Federation”.

This parallel bill complements the proposed reform by addressing similar restrictions in special legislation governing joint-stock companies and limited liability companies.

Rationale behind the initiative

According to the explanatory note, the current legislative ban on «matryoshka» structures restricts the ability of entrepreneurs to organize their businesses efficiently and hinders the implementation of flexible holding and corporate structuring strategies.

Following this logic, the draft law permits a company to have a sole participant in the form of another single-member legal entity. At the same time, it introduces certain corporate governance safeguards, namely:

• The sole executive body (General Director or CEO) of the parent company must not act as the executive body of the subsidiary;

• The sole participant (or shareholder) of the parent company must not perform executive functions in the subsidiary.

Expert comment

Alexey Chichirenkov,
Senior Associate, Corporate Practice, BBNP:

“This initiative would reasonably limit the creation of multi-tiered corporate chains to situations where such structuring is truly needed for the operational efficiency and legal convenience of business.”