Change of an LLC’s Executive (CEO)

The procedure of changing a company's CEO is shrouded in nuances that must be given their due diligence. Otherwise, a company’s procedure at the registration office may end up getting rejected. Today, we are going to tell you what important details to pay attention to.

Stages in making a change of CEO

Despite that a CEO is an employee himself, the procedure for dismissing him and onboarding a new CEO differs from the typical situation involving ordinary employees.

Here is how the procedure for a change of CEO change works stage by stage:

• necessary corporate procedures: relieving him of his duties and electing a new CEO;
• processing the documents required by labor law and payment;
• transferring affairs;
• registration of the changes at the tax office.

Remember! If you plan to elect a foreigner as your company CEO, you will also need to take care of issues with the SI MIA on migration affairs (formerly the FMS). For starters, this CEO will need to have a work permit issued for him. Otherwise, there is the risk of receiving a fine of up to 800,000 RUB (art. 18.15 of the AOC of the Russian Federation).

Let’s go through the nuances below taking these steps into consideration, not in order of sequence but rather in order of ascending danger in the case that these mistakes are made.

Registering changes at the tax office

The most frequent mistakes that are made in the event that a CEO is replaced are:

• incorrectly filling out the P13014 form;
• incorrectly writing up the record or resolution;
• the wrong executive is sent as the filer.

For instance, for several years now, the tax offices have not wanted to see the “old” CEO as the filer when being replaced. Only the “new” CEO can perform the role of the filer!

Remember! We often encounter situations where a new CEO had been previously banned from registering at a CEO in the USRLE for instance due to unverified information or compulsory exclusion from the organization's register in which he was an executive or the owner. In that case, the company is guaranteed that registration of the change of executive will be rejected, so in this moment it’s important to check on a person before appointing the desired CEO.

Tax offices who have doubts as to whether the new CEO really exists may suspend the registration procedure and call him into the tax office for a “heart-to-heart” conversation. If the new CEO is unable to come to the “work meeting” to explain clearly what the company is that he's going to be the head of, what it plans to do, what he personally plans to do, and an array of other issues – a rejection is imminent. The suspension may last up to 20 business days and for that entire time, the organization will essentially be left without an executive. This means that there will be nobody to sign bookkeeping, agreements, and sometimes even go to a client bank.    

Corporate procedures and the Labor Code of the Russian Federation

As a rule, all procedures take place on the same day: a shareholders meeting is held or the sole shareholder of the LLC adopts the decision to make a change of CEO. By default, a vote of at least 50% of the shareholders’ votes is required to make a change of CEO. The articles of association may envisage a different amount.

Remember! An “old” CEO cannot be dismissed on the same day that a new CEO is hired! Otherwise, a situation will arise in which two CEOs will be working at the same time, despite that according to most companies’ articles of association there can only be one.

Thus, the decision must be written up such that allegedly on one hand the CEO can be substituted on one day and on the other hand the CEO can be dismissed on a day other than the day that the new one is hired.

Another important thing that must be taken into account in preparing a resolution is that when a labor agreement with a CEO is urgently terminated, he must be warned about that in writing at least three days before the dismissal (part 1 art. 79 of the  Labor Code of the Russian Federation).   

Premature CEO Dismissal

A CEO can be dismissed for reasons other than the work contract running out. It can also be based on the business owner’s decision (art. 278 part 1 item 2 of the  Labor Code of the Russian Federation). However, in an array of cases, one will not be able to fire a CEO in this way:

• if the CEO is a pregnant woman;
• if her/she is on sick leave or on vacation;
• if he/she is among the list of persons mentioned in art 261 part 4 of the Labor Code of the Russian Federation;
• in other cases established by law.

In all other cases, the same grounds for dismissal exist in a CEO’s case as with all other employees.

Transferring Affairs

It’s extremely important to organize the transfer of affairs, documents, valuables, the seal, the electronic signature, access to the client bank, and other necessary items from the “old” CEO to the “new” one. This can be done both at a notary and in the presence of three witnesses who will also put their signature on the transfer-acceptance certificate.

It’s best to list all the documents and valuables being transferred in the certificate without any exceptions. Otherwise, it will be practically impossible to prove after that what was transferred and what the old director kept for himself.

Processing documents and payments

When a CEO is dismissed, there shouldn't be any problems with processing the documents: in that sense, the procedure is no different than procedures involving any other employee positions. You’ll need to write up a dismissal order, indicating in it the information on the record or the decision. A record will also need to be added to their work record book along with information on their work activity. An authorized employee or the company owner will need to be the ones to sign the documents. The Social Fund of Russia must be informed of the CEO's dismissal.

Our lawyers will help you get to the bottom of the aforementioned issues, consult you, accommodate you, and resolve the messiest situations related to substitutions of company CEOs.