Investment Partnership Agreement under Russian Law

 

An investment partnership is a legal form of association of investors with the purpose of consolidating financial resources for medium-term and long-term investments in investment assets and sharing risks associated with investment activities. An investment partnership (hereinafter referred to as the “IP”) is not a legal entity, it is an association of two or more investors on the contractual basis (investment partnership agreement, hereinafter also referred to as the “IPA”), which is regulated by a special law – the Federal Law No. 335-ФЗ dated 28.11.2011 “On the Investment Partnership” (hereinafter referred to as the “Law”). An investment partnership is a flexible form of investment organization; this method of pooling capital allows investors to agree on how decisions will be made in regard to each specific investment; what amount of money will be invested both in the investment itself and in managing such investment; in which cases investors will be entitled to leave the partnership; what are the obligations and responsibilities of the managing partner, etc. Such flexibility sets an investment partnership apart from such forms of organizing joint investment activities as creation of a business company or mutual fund. Regarding the last two entities, issues of management, making contributions, responsibility of the “manager” are regulated by the law, and not by an agreement of the parties.

Moreover, it should be noted that the contractual nature of an investment partnership gives this form of investment activities a very important advantage – absence of double taxation. Tax collection occurs only at the level of investors and does not occur at the level of investment partnership itself. At the same time, “project companies” (limited liability companies or joint-stock companies created for the purpose of implementing an investment project) are considered independent taxpayers regarding income tax. Part of the profit remaining after taxation may be distributed among participants (shareholders) of the project company, and participants (shareholders) will have to pay income tax on the amount received as a result of such distribution. As a result, there exist two levels of taxation on profits earned from investing activities.

An investment partnership can be described in a few words as follows:
An investment partnership agreement (which is subject to notarial certification) is concluded between two or more persons. The parties to this agreement have a different status, which entails their different rights and obligations. Limited partners undertake only to make contributions to the common property of partners for the purpose of making investments in all types of assets agreed upon by all parties, and have the right to receive only part of the profit from such investments (as a rule, in proportion to their share in the common property of partners). They are not entitled to participate in managing the business of an investment partnership. Only the managing partner is entitled and obliged to search for assets suitable for investment (that correspond to the investment declaration approved by all partners), organize investment and management activities (there may be several managing partners, and then there should be a clear delineation of their areas of responsibility indicated in the IPA, but, as a rule, an investment partnership, however, has one managing partner).

In addition, the managing partner shall be responsible for administrative and financial management of the IP (accounting, legal and other support for investment activities). The managing partner, like the contributing partners, contributes to the common property of the IP (and has the dual status of a contributing partner and a managing partner at the same time, accordingly), but generally his contribution is insignificant (1-2% of the total volume of IP contributions). Apart from the right to receive a part of the profit from investment activities, which is proportional to his share in the common property of the partners, the managing partner is entitled to remuneration for managing the partners’ joint affairs (the size and frequency of such payment shall be determined by the terms of the IPA) and sometimes, to success fee – in cases when the IP ROI exceeded the expected (target) level of return established by the agreement. Regarding general contractual obligations related to the investment activities of the partnership, each investing partner bear the proportional liability
within the value of his share in the common property of the partners and shall not be liable to the full extent of his assets. If the cost of the partners’ common property is insufficient to satisfy the creditors’ claims on the general contractual obligations related to implementation of joint investment activities of the partners, the managing partner bears subsidiary liability with all his assets. If there exist several managing partners, they will jointly and severally bear subsidiary liability for common contractual obligations related to joint investment activities carried out by the partners in case of insufficient value of the partners’ common property to satisfy the creditors’ claims.
Let us have a more detailed approach on each of the issues that are essential for organization of an investment partnership and conclusion of an investment partnership agreement.

 
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Norland Legal and NewLawyers announce merger under the new Lurye, Chumakov & Partners brand

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Norland Legal, specializing in legal support for establishment of investment funds, venture capital investments and M&A, and NewLawyers, specializing in corporate restructurings, tax consulting and IT projects support, announce merger of legal practices under the general supervision of co-managing partners Vladislav Lurye and Andrey Chumakov.

Norland Legal was established by Vladislav Lurie at the end of 2015 and specializes in establishment of investment funds, legal support for private equity and venture capital investments, M&A transactions, digital and fintech projects. The company’s clients are major institutes for development, public and private investment funds, Russian and foreign high-tech companies (Russian Venture Company, VEB Ventures, Da Vinci Capital, Far Eastern High Technology Fund, Sperasoft, Mintos, etc). Since 2017, Norland Legal has been ranked among the best Russian law firms in the area of Corporate/M&A (according to Pravo.ru-300 and IFLR 1000 rankings).

NewLawyers was founded by Andrey Chumakov at the end of 2016 and has proven to be a reliable legal partner in the sphere of legal and tax support for venture capital investment transactions, M&A and corporate restructurings. The company’s clients are companies from IT, e-commerce, telemedicine (Mobile Medical Technologies, Bystrodengi (Eqvanta), Cindicator, iBrain, Fitmost, Algoritmika, eKassir, eTicket) and many others.

Lurye, Chumakov & Partners joint enterprise is a boutique law firm which represents a team of eight high-end professionals specializing in the sphere of legal and tax support for private equity and venture capital investment transactions, M&A, restructuring projects and establishment of Russian and foreign investment funds.
Vladislav Lurye and Andrey Chumakov shall become the co-managing partners of the firm. *

* Vladislav Lurye – Co-Managing Partner. Prior to establishment of Lurye, Chumakov & Partners, Vladislav managed Norland Legal law firm, which he created after three years of experience in managing the legal department of Russia’s largest mezzanine investment fund. Futhermore, for 10 years before Norland Legal, Vladislav held offices in major Russian banks, such as Rosbank, VTB and MCB, where his specialization was Russian and foreign corporate and banking law. The aggregate total of investment transactions closed by Vladislav as a lawyer over the past few years, exceeds $ 600 mln.

* Andrey Chumakov – Co-Managing Partner. Prior to the establishment of Lurye, Chumakov & Partners, Andrey directed NewLawyers law firm, and before that he was an employee of Ernst & Young (CIS) B.V., where he rose through the ranks from senior consultant to senior manager of tax and legal consulting practice. Andrey possesses extensive knowledge in implementing projects of of diverse complexity in accordance with the laws of Russia, Belarus, Cyprus, the Netherlands, Luxembourg, as well as principal offshore jurisdictions. Among other things, his projects portfolio includes international tax planning and deoffshorization consulting services, M&A transactions and investment projects support and structuring under English law, corporate restructurings, legal and tax due diligence.

We are pleased to join our firms and strengthen our teams and expect this union will help us achieve the top score results together with our clients and partners.

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