Dividend Disputes Between LLC Partners

A participant in a Russian limited liability company has no automatic right to profits. Dividends appear only after the general meeting votes to distribute them. Once that decision is made, the unpaid amount becomes a debt that can be claimed in court. Most disputes arise from the gap between these two points: profit is earned, but the controlling partner blocks distribution or takes money out by other means.

Attorney Elena Petrova advises foreign participants of Russian LLCs, including investors based in California, on protecting their share of income.

Distribution Rules Under the LLC Law

The Federal Law "On Limited Liability Companies" allows distribution quarterly, semi-annually or annually. Profit is split in proportion to shares unless the charter, adopted or amended unanimously, sets a different order.

The law forbids distribution in several situations: before the charter capital is fully paid, if the company shows signs of insolvency, or if net assets would fall below the charter capital and reserve fund. If one of these grounds appears after the vote, payment is suspended until it disappears.

Payment Deadlines and Enforcement of a Decision

The charter or the meeting decision sets the payment period. If neither does, the statutory maximum applies. A participant who was not paid in time can demand payment for a limited period after the deadline. The charter may extend that period within the limit fixed by law.

Deadlock in a 50/50 Company

Equal partners often reach a standstill. One side refuses to attend meetings or votes against any distribution. A Russian court will not force the meeting to declare dividends, because distribution is a business decision of the company.

Practical routes exist. A participant can demand an extraordinary meeting and, if the director ignores the demand, convene it independently under the procedure in the LLC Law. A corporate agreement between partners can settle distribution rules in advance and give a clear basis for claims.

Going to Court Over Unpaid Profits

Corporate disputes go to the arbitrazh court at the company's registered address. A participant can sue the company for declared but unpaid dividends with interest for delay under the Civil Code.

When the director diverts income, a participant may bring a claim on behalf of the company for damages under the Civil Code rule on director liability. The money goes to the company, which restores the base for future distribution. Access to accounting documents is often the first step, and a refusal to provide them can be challenged separately.

Unjust Enrichment and Disguised Distributions

A controlling partner sometimes receives profit through inflated salary, consulting fees or loans that are never repaid. Such payments may be challenged as invalid transactions or claimed back as unjust enrichment under the Civil Code.

Courts look at the economic substance of the payment. Evidence usually includes bank statements, contracts without real services and comparisons with market pay.

Leaving the Company When Talks Fail

If the charter allows withdrawal, a participant can leave and receive the actual value of the share. That value is calculated from net assets. A participant who voted against a major transaction may also require the company to buy the share.

Selling the share to the other partner or a third party is another route. The pre-emptive right and charter restrictions must be respected.

Practical Steps for a Foreign Participant

Start by collecting the charter, minutes of meetings and financial statements. Check whether a distribution decision exists and whether any statutory ban applied. Then choose between a debt claim, a derivative action or an exit strategy.

The main channel of communication with the attorney is email: attorneypetrova1@gmail.com.