On May 30, 2025, Russian President Vladimir Putin signed a decree authorizing an initial public offering (IPO) of Dom.RF, a company with state participation. At the same time, the state will retain a controlling stake - at least 50% of shares plus one voting share.
Recently we see more and more news about plans of companies with state participation to enter IPO. Placing additional shares of such companies by public subscription may require compliance with the current Russian privatization legislation.
In this article we analyze key aspects related to the applicability of the current Russian privatization legislation to such transactions.
Is the placement of additional shares by public subscription privatization?
In accordance with Article 1 of the Federal Law dated 21.12.2001 No. 178-FZ “On Privatization of State and Municipal Property” (“Privatization Law”), privatization of state and municipal property is understood as a compensated alienation of property owned by the Russian Federation, constituent entities of the Russian Federation, municipalities into the ownership of individuals and (or) legal entities.
Shares of additional issue are not state or municipally owned property, as they become the property of their first owners upon placement:
“placement of issue-grade securities - alienation of issue-grade securities by the issuer to the first owners by means of conclusion of civil law transactions”
(subp. 14 Article 2 of Federal Law No. 39-FZ “On the Securities Market” dated April 22, 1996).
In this connection, the placement of additional issue shares by public subscription is not privatization.
Is it necessary to obtain the consent of authorized bodies to increase the authorized capital of a company with state participation by placing an additional issue of shares by public subscription under privatization legislation?
The Privatization Law provides for several grounds under which a joint stock company with state participation will need to obtain the consent of the authorized body to increase its authorized capital by means of an additional issue of shares. Such grounds are the establishment of a joint stock company with state participation in the process of privatization and the company's status of a strategic joint stock company.
Thus, in accordance with Article 40 of the Privatization Law, an increase in the authorized capital of a joint stock company established in the process of privatization by means of an additional issue of shares may be carried out with a reduction in the share of the state or a municipal entity in the event of a positive decision by a local government body / executive authority of a constituent entity of the Russian Federation / the Government of the Russian Federation / the President of the Russian Federation and only provided that the state's share in the authorized capital of such a company, as defined by the Privatization Law, is retained.
Determination of the body authorized to make the relevant decision is based on the form of ownership of shares (state, municipal), the size of the share of the state, constituent entity of the Russian Federation or municipal entity in the capital of the company and whether the company has the status of a strategic joint-stock company.
For example, in accordance with paragraph 5 of Article 40 of the Law on Privatization:
“If there are state-owned shares of a joint-stock company included in the list of strategic enterprises and joint-stock companies, providing at the time of adoption of the relevant decision more than 50 percent of votes at the general meeting of shareholders, the increase in the authorized capital of the said company by means of an additional issue of shares may be carried out with a reduction of the state's share in the event of a positive decision by the President of the Russian Federation and only provided that the state's share is maintained in the amount of not less than one part of the authorized capital of the company”.
A special provision of the Law on Privatization, dedicated to the preservation of the state's share in the authorized capital of joint stock companies in the case of placement of shares by public subscription and their listing by the stock exchange, sets forth identical grounds, in the presence of which a joint stock company with state participation will need to obtain the consent of the authorized body for placement of shares by public subscription - the creation of a joint stock company with state participation in the process of privatization and (or) the joint stock company's status of a strategic joint stock company
Determination of the body authorized to make the relevant decision is also based on the form of ownership of shares, the size of the share of participation of the state, a constituent entity of the Russian Federation or a municipal entity in the capital of the company and whether the company has the status of a strategic joint stock company:
"In the case of placement of shares of joint stock companies by public subscription and their listing by the stock exchange:
an increase in the authorized capital of a joint stock company included in the list of strategic enterprises and joint stock companies and determination of the size of the state's share in the authorized capital of the said joint stock company shall be carried out by decision of the President of the Russian Federation;
increase of the authorized capital of a joint stock company, which is created in the process of privatization and whose shares are in state or municipal ownership and provide more than 25 percent of votes at the general meeting of shareholders, and determination of the size of the state's share in the authorized capital of the said company shall be carried out by decision of the Government of the Russian Federation, an executive authority of a constituent entity of the Russian Federation or a local government body".
In this connection, within the framework of privatization legislation, a joint-stock company with state participation may need to obtain the consent of the authorized body to increase its authorized capital through an additional issue of shares by public subscription if it is established in the process of privatization and (or) if it has the status of a strategic joint-stock company. At the same time, there is currently some uncertainty regarding the definition of the list of companies created in the process of privatization due to the absence in the current legislation of a regulated procedure for the creation of companies in the process of privatization and the absence of criteria allowing to make an unambiguous conclusion about the creation of companies in the process of privatization.