Inheritance of business in Russia, including complicated by insolvency

The modern procedure of registration of inheritance rights, including for business property clearly regulated by law. However, it is worth noting that a special law regulating the succession in the Russian Federation, no.

All the issues associated with inheritance (including business) in the Russian Federation, regulated by part 3 of the Civil code and special laws, depending on the form of business organization (for example, Federal law “On joint stock companies”, FZ “About limited liability companies”, Federal law “On production cooperatives”, etc.).

Inheritance (including business) in the Russian Federation may by law, under the will (including a joint will of spouses), and inheritance contract.

If the business owner had made a will or signed by the heirs of the hereditary contract, the heirs are those persons specified in a will or succession agreement.

However, as a rule, when you inherit a business conclusion of the hereditary contract is especially useful, since the potential heirs and the testator agree in advance what and who will go, what conditions you need to fulfill. For example, if the testator has to understand that his family will not be able to continue his business, he may enter into the hereditary contract with your partner and to provide that his share in the LLC will receive a partner who will have half of the profits to give to the family of the testator or to transfer 10 % of profits to charity, etc.

The testator by will or inheritance contract may leave all property to one or more heirs (as all physical persons and legal entities).

IMPORTANT! Freedom of the will and succession contract is restricted by compulsory shares. So, minor or disabled children of the testator, his disabled spouse and parents, and disabled dependants of the testator would get part of the property of a deceased person, even if they are not mentioned in the will. Therefore it is better to assign this to the relatives of a certain share of ownership is at least the size stipulated in the law.

Be inherited will be only that property which is named and listed in a will or inheritance contract, the testator and the property which was not mentioned will be inherited based on the law.

In the case that an owner of a business will or a hereditary contract is not made, all rights to inheritance, will pass to the relatives of the deceased on the basis of the law.

The Civil code provides 8 queues of inheritance based on kinship, with each subsequent stage cross only if there are no heirs of the previous turn.

First – children (including those conceived during the lifetime of the testator, but not born before his death), spouse and parents of the testator. It does not matter from which marriage were born children – from previous, the prisoner at the time of death or out of wedlock. Instead of children of the testator who died at the time of opening the inheritance, the inheritance receive their descendants, that is, grandchildren of the testator. With the civil husband, the wife not included in the specified queue and can not inherit without a will.

Second stage – full and half brothers and sisters of the testator, its grandfather and the grandmother both from the father’s and mother’s side.

Third place – uncle and aunt of the testator.

Next stage – more distant relatives.

IMPORTANT! All successors of one turn inherit in equal shares from the estate of the testator shall always be subject to allocation of the spousal share, which is 50 % of the total assets that were acquired during the marriage (this includes inheritance LLC shares, and shares in AO as required by law and under the will).

In the absence of the testator’s relatives or the refusal of acceptance of the inheritance by all the heirs, as well as the absence of a will or inheritance contract, all property is considered unclaimed and shall be transferred to the state.

To acquire the inheritance, the heir must accept it within six months from the date of opening (clause 1 of article 1152, paragraph 1, article 1154 of the civil code).

To accept the inheritance in two ways (article 1153 of the civil code):
1) submit an application to the notary at the place of opening the inheritance (not later than six months from the date of death, section 1 of article 1154 of the civil code);
2) perform the actual action (to manage the property, to take measures for its protection and preservation, or to pay debts owed to the testator money, etc.).

After the inheritance, the heirs must obtain a notary certificate of inheritance. The certificate of right to inheritance shall be issued to heirs at any time after six months from the date of opening of the inheritance. It can be issued before the expiration of six months from the date of inheritance opening if there is authentic data that except the persons who have applied for a certificate, other heirs entitled to inheritance or relevant part, not available.

On the basis of registration of the transfer of rights on real estate and shares, stocks and shares in legal entities.

At the same time since the opening of the inheritance before the expiry of the six-month period for acceptance of inheritance, the notary takes measures on protection of hereditary property.

So, if the composition of the inheritance includes a property demanding not only protection but also management (the company’s share in the authorized (share) capital of economic partnership or a society, securities, exclusive rights etc.), the notary signs the contract of trust management of such property, and acts as a Trustor of the trust assets.

The estate includes all property (things, money, securities, movable and immovable property, property rights) and debts of the testator, except in cases where property rights and obligations are inextricably linked with the personality of the deceased or, if their transfer in the order of succession is not permitted by Federal law (e.g., not part of the inheritance entitled to alimony, the right to compensation of harm caused to life and health of the citizen).

The heir to the estate is only responsible within the value of the inheritance.

In addition, the heir receives an inheritance as a single unit. This means that the heir may not make any separate rights and (or) duties and abandon other rights and (or) duties. For example, the heir cannot take in the heritage apartment and the money, but refuse to accept the obligation to pay the debt on the contracts signed by the testator.

Inheritance business has its own peculiarities depending on legal forms of doing business, which would touch upon peculiarities of the inheritance of the 3 most common forms of business organization: sole proprietor, limited liability company, joint-stock company.

1) the Inheritance of property of an individual entrepreneur.

In the event of death of an individual entrepreneur subject to the General provisions of inheritance.

The property of the individual entrepreneur is inseparable from its property as individuals. Any property of an individual entrepreneur, including property rights, inherited on a General basis, is the same as if the inherited property.

So, the property of the individual entrepreneur can be inherited either by law or by will or by inheritance contract. It is first to inherit are called the persons referred to heirs in probate and succession agreement, and then the turn comes to the heirs at law.

The status of an individual entrepreneur heirs is not inherited and is terminated with the death of a person. By inheritance pass only the assets (manufacturing facilities, trademarks, objects of movable and immovable property, cash, securities). Becoming the heir of the individual entrepreneur and received as the inheritance of his property, cannot automatically become the individual and to continue the work of the testator.

If the heirs want to continue the business, they need to register as an individual entrepreneur or to create a legal entity to continue the introduction of entrepreneurship and to renegotiate all contracts with contractors, and employees of the testator.

IMPORTANT! In the case that the testator intends to transfer the business of a bequest to a person or persons not forget the obligatory share of inheritance. To portion not withdrawn from the business, you need to leave minors or disabled children, disabled spouse and parents, and disabled dependants other assets of not less than half of what was supposed to be them without a will.
The heirs who received inheritance of an individual entrepreneur, acquired not only his rights but also responsibilities (debts). Liability for the obligations of the testator to all heirs are jointly and severally, within the cost of inherited property. (clause 1 of article 1175 of the civil code). For example, if the heir inherited the goods from the store, as well as apartment and commercial space of the deceased individual entrepreneur for a total amount of 20 000 000 rubles, and the debt on the loan in the amount of 25 000 000 RUB., the liability of the heir is to the value of the received property, namely only in the range of 20, 000, 000.

IMPORTANT! When you inherit the property of the individual entrepreneur transferred to others in the way of universal succession, i.e. as a single unit. This means that the heirs accepting the estate of a deceased, can not give up his debts. Or heirs waive all property and debt including or inherit, and property and debts. The only way to get the debt — to refuse an inheritance.

Is very deliberate approach to the question of joining the legacy, because together with the large condition can be inherited large debts, which makes the acceptance of the inheritance is meaningless.

In addition, since 2015, in the case that the size of the debt of the deceased will exceed 500 000 and the delay in payment is more than 3 months, creditors of the deceased, and the heirs (after the inheritance) shall be entitled to initiate bankruptcy proceedings against a deceased citizen (bankruptcy estates).

The procedure of bankruptcy is governed by article 223.1 of the Federal law № 127 “About an inconsistency (bankruptcy)”.

If the application of a creditor or heir is recognized by the court as justified, it immediately introduces a procedure for the implementation property.

In accordance with paragraph 7 of article 223.1 of the bankruptcy Law in the bankruptcy estate included the estate of deceased, which includes all the property of the defaulter, except property, which is the only housing his relatives, while debt can be collected only within the cost of inherited property.

Themselves the heirs involved in the case as interested parties who are directly involved in the distribution of the estate of the deceased.

After completion of calculations with creditors the citizen recognized by the bankrupt, is released from further performance of creditors ‘ claims.

The heirs to preserve the possibility of receiving part of the inheritance after bankruptcy should be exercised in the framework of bankruptcy proceedings of the testator active stance to prevent:
– inclusion in the register of the unreasonable demands of creditors, which will lead to the reduction of hereditary weight and as a consequence decrease the possibility of obtaining heirs, any assets remaining after the satisfaction of creditors ‘ claims;
– violations of the rights of the heirs in selling the property of the deceased. For example, the implementation of the estate of the deceased at a lower price and as a consequence the reduction of the insolvency estate;
– unreasonable challenge of transactions committed by the debtor during the life;
– avoid inclusion in the bankruptcy estate of the dwelling, which may not be foreclosed;

Moreover, the bankruptcy of a deceased citizen is for heirs only option to part of the inheritance and free inheritance from debts, for example, if, after the deceased was left sole heir of housing and a lot of debt. In the case of recognition of the debtor bankrupt housing is left to the heir, and the debts written off.

2) the Inheritance of shares in a limited liability company (LLC).

Shares in the company are inherited by the General rules of inheritance, but with a few twists, as in the case of death of the testator as a General rule, the share in the authorized capital can be inherited (paragraph 6 of article 93 of the civil code).

However, if founders (participants) in the organization at the LLC Charter may stipulate that the heir may become a member only with the consent of other participants. If the heir refused to participate in the LLC, under paragraph 2 of article 23 of the Federal law “On limited liability companies” the company shall pay him the actual value of shares. If there are several heirs and other parties may take certain heirs, and others refuse. Therefore, inheritance of a share in OOO yet no evidence that an heir can become a member.

After the inheritance, the heirs must obtain a notary certificate of inheritance. On the basis of its registration in the register of transfer of rights to a share in the company. From the date of any change in incorporation heir becomes a full member, with all the rights to participate in management of the organization and to receive dividends.

IMPORTANT! To obtain a certificate of inheritance, the composition of the society remains uncertain, the heir may not participate in the management shares. Such control may be exercised by the Trustee in the manner prescribed in article 1173 of the civil code). The initiator of trust management can be as the heir and other persons and bodies interested in the preservation of the estate (including the company) (clause 2, article 1171 of the civil code, paragraph 8 of article 21 of the Law on LLC). The trust deed is valid as long as the heir is not inherited.

Manager receives the same amount of rights as a participant. It can therefore take all actions necessary for the activities of the society. In the contract of trust management describe in detail what specific decisions and under what conditions is entitled to take the Manager. However, he cannot dispose of controlled shares, as its main objective the preservation of the inheritance.

In addition, in the case of probate assets, including shares in the LLC, the testator may entrust the execution of a will specified in the will the executor (executor) regardless of whether such person’s heir. An executor can be a citizen or legal person. In this case, the executor is deemed a Trustee of hereditary property from the time of expressing their consent to be the executor. The testator may provide in his will the actions that the executor is obliged to make, and the actions from committing which he is obliged to abstain, including the right to provide for the duty of the executor to vote in the Supreme bodies of corporations in a manner specified in the will.

3) the Inheritance of shares in a joint-stock company (JSC).

Inheritance share inheritance the share in OOO takes place in a General manner, however, unlike the LLC, where the transfer of a share in the inheritance requires the consent of other founders, inheritance of shares in public joint stock companies, as a rule, shareholder approval is not necessary.

IMPORTANT! The Charter of a society can be stipulated the necessity of obtaining the consent of shareholders for the alienation of shares to third parties. This provision of the Charter of a society is valid for a certain period provided in its Charter, but not more than five years from the date of state registration of non-public companies or from the date of state registration of the amendments to the company Charter.

After the 6 month period for acceptance of inheritance and the issuance of the certificate of inheritance the heir with your passport and original certificate (or a notarised copy) in person or through a mediator refers to the Registrar with a statement on making amendments in the register of shareholders.

After making changes in the register of shareholders, the heir becomes the owner of stock may dispose of and participate in the management of the company (if the number of shares).

In this case the inheritance shares of the heirs can be difficult. So to EGRUL contains information only about the founders of the JSC. Data on shareholders are at the Registrar of JSC. This information is not in the public domain, and the heirs may simply not know that the deceased had shares.

To receive the heirs should know that a shareholder of a joint stock company was the testator.

If the heir believes that the testator had shares of any of the JSC, it shall notify the notary. The notary will make the request to the appropriate Registrar to verify this information.

IMPORTANT! From September 1, 2018 in the Russian Federation introduces a new mechanism for the transfer of business by inheritance – hereditary Fund, which is created after the death of the testator. The mechanism is aimed at preserving the business of the testator after his death from taking wrong steps heirs with a further business and the foolish waste of capital, which may result in a collapse of the whole business. Creating specified hereditary Fund, the testator passes after the death of all of its assets, inheritance Fund and entrusts the leadership of such Fund authorized persons with the relevant expertise to conduct business, and define to whom, how and for what purpose must be profit. For example, a testator specifies in the decision to establish a Fund that revenues from the management of its assets must be spent on the maintenance of the family heir, as well as other purposes including charity. The creation of genetic Fund of the Russian Federation include the preparation of wills a citizen, which necessarily includes the creation of genetic Fund; the preparation of a citizen during the life of the decision on the establishment of the hereditary Foundation; approval of the citizen Charter of the Foundation.

As mentioned above, inheritance including LLC shares and shares in a JSC must carefully approach the question of accession to the inheritance, since there may be cases when the company is in bad financial position, including the signs of insolvency (the amount owed the company more than 300 000 rubles, and the period of arrears more than 3 months), in this case acceptance of the inheritance is usually impractical, and shall be for the heirs to certain risks, including the risk of bringing them within the cost of inherited property to vicarious liability in the bankruptcy of the company, in which the testator was a controlling person (e.g. the founder and/or CEO).

Thus, according to definition of judicial Board on economic disputes of the Supreme Court dated December 16, 2019 No. 303-ЭС19-15056 debt of the testator arising from bringing him to vicarious liability in the bankruptcy of the company, of which he was a controlling person, is included in the estate of the deceased, and to be recovered from the heirs within the value of the received inheritance.

Therefore, before acceptance of the inheritance, including in the form of shares in the company, and shares in a JSC must conduct a detailed analysis of financial and economic activities of the companies, a careful evaluation of assets and debts, to assess the future prospects of the inherited property and the possible risks. Encourage heirs to the inheritance to collect all available documents and contact the lawyers to explain the amount of known liabilities of the deceased, the risks of new debt against the testator, claims, prospects of recovery and the possibility of challenging transactions in which a testator has debts.