Corporate Law in the System of Russian Law

Popondopulo V.F., Doctor of Law, Professor, Head of Commercial Law Department, St.Petersburg State University, Saint Petersburg, Russia

The article deals with controversial issues of the notion and the legal nature of corporate law, and its place in the system of law. It also gives the author’s position concerning these issues. In particular, corporate relations as an object of civil-law regulation are defined in the article as a type of relations of obligation that arise in connection with participating in the corporate relations or with managing them as to property rights (stakes, shares, securities, remuneration) of corporate members. The author distinguishes between the characteristics and the types of corporate relations. Corporate law is defined as a functional institution of law of obligations. It is a combination of general and special rules of civil law regulating binding relationships connected with the property rights (stakes, shares, securities) of corporate members (corporate relations) based on the equality, the autonomous will and the property independence of their participants.

Key words: civil law, law of obligations, corporate law, corporate organization, corporate relations, stakes, shares, securities.

The problems of corporate law have been actively debated in Russia. They have become particularly relevant since some amendments to the RF Civil Code were made: corporate relations were included in the subject of civil-law regulation (Art 2)[1]1, and the provisions on legal entities created in the corporate form were renewed (Ch 4)[2].

The said novelties of the RF Civil Code are convenient for the law-enforcement practice as they answer a series of questions: about the sectoral affiliation of corporate relations; about the grounds of their origin; about the peculiarities of the legal status acquired by corporate organizations and their participants; about their relationships concerning their interest, corporate stock, shares and other property and related non-property rights.

However, while recognizing the importance of the practical aspect for accentuating corporate relations within the object of civil-law regulation, the scientific importance of laying emphasis on corporate relations in the structure of the civil law subject should not be overestimated. In essence, the relations called corporate in the Civil Code were previously included in the subject-matter of civil law as they were part of the generic unity defined by the Civil Code as property and personal non-property relations, based on equality, autonomous will and property independence of their participants (para1, cl 1, Art 2).

Indeed, one may agree with those authors who think critically about accentuating corporate relations in Art 2 of the RF Civil Code[3]. The lawmaker did not introduce the said category of social relations in the sphere of civil law regulation but only directly identified it. This novelty resulted in losing holistic scientific understanding of a legal entity because legal entities include both corporate and unitary organizations. In this context, a rhetorical question arises: Does the object of the civil law regulation include relations arising in management of unitary organizations[4]? If the answer is yes, why is this point not reflected in Art 2 of the RF Civil code?

Legal literature defines the notion of corporate relations mainly through their parties, i.e. corporation and its participants. This is correct.  However, this definition does not reveal the essence of corporate relations. To understand the nature of corporate law we must define the parties to corporate relations and the content of these relations.

In my opinion, corporate relations are civil-law binding relations, connected with participation in corporate organizations or with their management. This approach does not contradict legal provisions mentioned in renewed Art 2 of the RF Civil Code though corporate relations are listed in this article among other binding relations.

We will examine central academic views of   legal nature of corporate relations and the place of corporate law in the system of law.

But, it would be interesting to recall the discussion in the late 1980s held at the All-Union Conference of Heads of Legal Disciplines Departments. The topic of the discussion was the nature of cooperative law that now relates to the issue of the nature of the corporate law[5]. 

V.V. Petrov, N.I Konyaev and Ya.Ya. Strautmanis were of the opinion that cooperative law was an independent branch of law. V.V. Petrov, for example, thought that cooperative law had an independent object of legal regulation - cooperative relations based on membership, and an independent method of legal regulation - the method of cooperate democracy. In my opinion, these arguments do not stand up for criticism as  membership is only a ground for legal relations, but the ground does not determine the content of legal relations. Cooperative democracy at closer examination turns out to be the method of harmonizing  wills (a method of civil-law regulation). Other authors from theis group explained the independence of cooperative law by the growth of cooperative legislation. Yet, the nature of a legal phenomenon can hardly be determined by the number of normative acts.

V.F. Chigir, Yu.G. Basin, V.V. Luts’, N.D. Egorov supported another point of view. Defining the cooperative law, they emphasised the complex nature of the legislation regulating cooperative relations. Though in this case, they should have spoken not only about cooperative law but about cooperative legislation,  which is not the same thing.

The dispersion of opinions about the nature of corporate law and relations regulated by this law has grown significantly now. 

First of all, we can conventionally mark two main approaches to specifying the place of corporate law in the system of law: some authors do not include it in civil law, others, conversely, emphasise its civil-law nature.

The authors who do not classify corporate law as part of civil law tend to view it as an independent branch of law[6], a complex branch of law[7], an institution of business (entrepreneurial) law[8]. Considering the internal character of corporate relations, V.S. Belykh, for example, believes that they “cannot be regulated only by civil law but also by administrative law”[9]. I think, the latter case represents the confusion between the so-called “internal business relations”, which are neither civil (commodity-related) relations nor administrative (public) relations, and corporate relations arising from participating  in a corporation and having the form of civil corporate legal relations. In fact, a member of a corporation has his/her own property interest that does not coincide with the interests of the corporation. The balance of these interests set out by the law is the object of civil-law regulation.

As corporate relations were included in the subject of the civil regulation, the basis for defining corporate law as an independent and complex branch of law was seriously undermined. Corporate law is legally recognized to be a division of civil law, and corporate relations are included in the object of civil-law regulation.

The majority of the corporate law researches proceed from the assumption of  its civil nature, but they interpret it differently: as a separate subbranch of  civil law non-related to the law of obligations[10],  a separate institution  of the law of obligations[11]. The latter view is the most reasonable.

Those who associate corporate law with civil law are also engaged in a discussion about the civil-law form of corporate relations: some authors consider legal prerequisites of other legal relations to be a legal form of the said relations; others think that concrete legal relations are legal forms of corporate relations.

The authors who regard corporate relations as prerequisites of other legal relations recognize as such: corporate legal capacity allowing to participate in other legal relations[12], secundar legal relations that are the prerequisite of other relations[13], absolute legal relations that are the prerequisite to the dynamics of corporate relations[14].

I think that such scientific views are unconvincing because the legislator identifies corporate relations as definite (already formed) relations regulated by civil law.

Some authors identify specific civil-law relations as legal forms of corporate relations. They indicate legal property relations with multiple structure of stakeholders[15], relative civil legal relations that are not reduced to legal relations of     property and obligation[16], regal relations of obligation with certain specific features[17].

The view of those authors who define absolute relations as a legal form of corporate relations also seems unconvincing. Corporate relations are connected with participating in corporate organizations or with managing them[18], i.e. they imply   concrete participants in such relationships that are relative but not absolute.

There are two points of view that reflect the essence of the discussed phenomena most closely. According to them, corporate legal relations are: 

а) relative civil-law relations that are not reduced to the relations of obligation (D.V. Lomakin, E.A. Sukhanov);

b) a kind of relations of obligation (V.V. Prokhorenko, D.I. Stepanov). The latter view seems more convincing.

Defining the object of civil-law regulation (Art 2 of the RF Civil Code), the legislator points out its generic characteristics (i.e. property and non-property relations) and types of the regulated relations including relations connected with the participation in corporate organizations or with their management (corporate relations) that must logically be characterized by property and non-property content (generic indication). D.V. Lomakin reasonably says that corporate relations are “relations of property and non-property participation in the activities of a corporation by its members”[19].

I think that corporate relations are property (obligation-related) relations based on equality, autonomy of will and property autonomy of members. These relations arise in connection with participating in corporate organizations or with managing them), that the following points come from this definition:

а) corporate relations including relations between  managerial bodies of corporation are private relations. That is why we cannot agree with the statement that corporate law regulates formation, activities, and termination of corporations in their private-law and public-law aspects[20]. Public relations connected with the state registration of corporate organizations are not corporate relations. They are the object of public-law regulation based on power and subordination.

b) corporate relations are not entrepreneurial relations as participation in corporate organizations and their management does not  require  the entrepreneurial status. Of course, both participants and managers together with corporation may have the entrepreneurial status, but they do not take part in corporate relations as entrepreneurs. So, in my opinion corporate law cannot be assigned to the institution of business (entrepreneurial) law[21].

c) Corporate legal relations are legal relations of obligation: the reasons for their dynamics are multilateral and unilateral transactions on formation and termination of corporate relations; property and related non-property (institutional)[22] rights as well as responsibilities of the corporation and corporation’s participants form the content of corporate legal relations; the objects of corporate relations are shares and stocks in respect of which the corporate relations arise.

A participant of a corporation needs non-property rights for the participation, management and information to exercise his property corporate rights more efficiently (to make a well-informed decision). Non-property rights of the participants support their basic property right (rights for a share, a stock, a dividend, a liquidation quota or remuneration). They cannot exist without property rights, being very related to them.

d) corporate relations are divided into several types: between the members of the corporation and the corporation; between the members of the corporation through the activities of the corporation; between the members of the corporation; between the members of the corporate bodies and the corporation, etc. Legal regulation of the said relations has certain specific features. At the same time, according to their content, they are relations of obligation. 

So, corporate law is a combination of general and specific provisions of civil law regulating relations of obligation connected with participating in corporate organizations or with managing them (corporate relations) based upon equality, autonomy of will and material independence of their members.  

Judging from this definition of corporate law, we can infer that it is neither an independent branch of law nor a complex branch of law, nor the institution of business (entrepreneurial) law. It is a constituent part of civil law.

In my opinion, corporate law is not a subbranch of civil law, as the subbranch includes norms of the corresponding branch of law that governs peculiarities of a certain type of relations regulated by the branch of law. Particularly, the law of obligation is such a subbranch of civil law that regulates the relations of obligation. So, corporate law is a functional institution of law of obligation. The functionality of this institution is reflected in its role to regulate relations of obligation connected with participating in corporate organizations and managing  them in respect of  property rights (shares and stocks) belonging to the members of the corporation (corporate relations).

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