Bill on the determination of the value of an LLC's share upon shareholder’s withdrawal

According to media reports, the Russian Ministry of Economic Development has drafted an updated version of the bill on determining the value of the share of LLC shareholders withdrawing from the company, which was presented last year. Currently, upon withdrawal from an LLC, a shareholder receives payment based on the book value of net assets determined by the company, which usually does not correspond to the market value of the share. The existing mechanism often leads to court disputes, and the amendments proposed by the Ministry are expected to reduce their number.

The document provides for the company to assess the market value of a withdrawing shareholder's share at the latter's initiative and expense. Payments will be made on the basis of this assessment, and in case of disagreement with the assessment, the withdrawing shareholder will have the right to challenge it in court.

The valuation of the share may also be initiated by the company’s creditors in case the court forecloses on the shareholder's share, as well as other persons, for example, heirs, to whom its value is to be paid.

While it is in the interests of the withdrawing shareholders to receive the market value of the share rather than the book value, its payment may become a serious burden for companies with low asset value. It is also debatable whether the company has the right to independently select (including expensive) appraisers, since the obligation to pay for their services falls on the withdrawing shareholder.