Law & Contracts

Definitions

Protection of Property

— the foundation of a market economy. Without reliable protection of property rights, entrepreneurs will not invest: why build a factory if it can be seized? Law determines who owns what, how property is transferred, and how it is protected from enc...

Ensuring Contracts

— without legal compulsion to fulfill contracts, business transactions would be impossible. Imagine: you sign a contract for the supply of goods and the counterparty does not pay. The legal system allows you to recover the debt through the courts. T...

Reducing Transaction Costs

— law creates standard structures (LLC, JSC, standard contracts) that save you from having to reinvent the wheel every time. The “joint-stock company” standard allows investors to understand the basic parameters of a structure without having to stud...

Allocation of Risks

— law establishes who bears the risk under various circumstances (force majeure, counterparty bankruptcy, product defects), which enables parties to plan and insure risks.

The Constitution

— the fundamental law of the state, possessing supreme legal force. All other norms must correspond to it.

Subordinate acts

— government decrees, ministerial orders. They specify provisions of laws.

Judicial precedents

— in common law countries (United Kingdom, United States, Australia) decisions of higher courts create precedents that are binding on lower courts. This is radically different from continental law, where courts apply the norm of law, not the precedent.

Contract

— in private law, parties are entitled to independently set rules for their relationships. A well-drafted contract is a “private law” for its parties.

Law is a system of universally binding rules of conduct, established or sanctioned by the state, the enforcement of which is guaranteed by the coercive power of government agencies. Unlike moral norms, legal norms are formalized, specific, and applied coercively. For business, law fulfills severa...

Protection of Property — the foundation of a market economy. Without reliable protection of property rights, entrepreneurs will not invest: why build a factory if it can be seized? Law determines who owns what, how property is transferred, and how it is protected from encroachments.

Ensuring Contracts — without legal compulsion to fulfill contracts, business transactions would be impossible. Imagine: you sign a contract for the supply of goods and the counterparty does not pay. The legal system allows you to recover the debt through the courts. This is precisely what makes p...

Reducing Transaction Costs — law creates standard structures (LLC, JSC, standard contracts) that save you from having to reinvent the wheel every time. The “joint-stock company” standard allows investors to understand the basic parameters of a structure without having to study hundreds of pages.

For international business, it is critically important to understand that there are fundamentally different legal systems in the world. The choice of jurisdiction for a transaction, company registration, or dispute resolution has enormous practical significance.

It originated on the basis of Roman law and covers Germany, France, Spain, Italy, the Netherlands, Russia, most Eastern European countries, Latin America, Japan, and South Korea.

The Civil Code of Russia is a typical example: 1,551 articles covering all key issues of civil law. The German BGB (Bürgerliches Gesetzbuch, 1900) became a model for many codifications.

It originated in England and spread through the British Empire. It covers the United Kingdom, the USA, Canada, Australia, New Zealand, India, Hong Kong, Singapore, and most Caribbean states.

Definitions

Corporate Veil

— the principle by which founders/shareholders are not liable for the debts of the legal entity. This provides limited liability. However, under certain conditions, a court may "pierce the corporate veil" and hold the founders liable—for example, if...

Limited Liability Company (LLC)

— the most popular form for small and medium business. Participants bear risk only within the limits of their contribution to the charter capital. Flexible management, does not require public disclosure of information.

Joint-Stock Company (JSC / Corporation)

— a form for large business and attracting investment. The charter capital is divided into shares. Public JSCs can be traded on the stock exchange. More complex corporate governance: board of directors, audit, mandatory disclosure of information.

Partnership

— common in common law countries for professional firms (legal, audit, consulting). In a general partnership, partners bear unlimited liability. LLP (Limited Liability Partnership) combines the flexibility of a partnership with limited liability.

Law regulates relationships between subjects—those who have rights and bear obligations. Subjects are divided into natural and legal persons.

A natural person is a human being (citizen, foreign national, stateless person). From a legal perspective, every person possesses legal capacity (the ability to have rights and bear obligations) from the moment of birth, and capacity to act (the ability to independently perform legally significan...

A natural person may conduct business as a sole proprietor (IP in Russia, sole trader in the United Kingdom, sole proprietor in the USA). The advantage is simplicity of registration and management. The disadvantage is unlimited personal liability for business debts.

A legal person is an organization that by force of law is recognized as an independent subject of law, separate from its founders and participants. This is one of the greatest inventions of law, enabling the concentration of capital and the distribution of risks.

Definitions

Contractual risk

— the risk that a contract will not be fulfilled or will be deemed invalid. Reasons: defects of will (fraud, coercion), non-compliance with the law, failure to perform essential conditions, force majeure. Example: a construction contract that does n...

Regulatory risk

— the risk of violating regulator requirements. For financial companies, this includes licensing (CB, DFSA, FCA), anti-money laundering legislation (AML/KYC), data protection (GDPR, Russian personal data law). Fines for violating the GDPR reach up t...

Labor risk

— unlawful dismissal, discrimination, violation of labor conditions. In Europe, courts generally protect the employee; in the USA—"employment at will" (free dismissal), but with many exceptions.

Tax risk

— claims from tax authorities due to aggressive tax planning, incorrect classification of transactions, transfer pricing.

IP risk

— infringement of others' patents, trademarks, copyrights. Apple and Samsung have spent billions on patent wars.

Sanctions risk

— working with persons or jurisdictions under sanctions (OFAC, EU, UK).

1. Legal audit (Legal Due Diligence)

— systematic check of the legal status of a company or deal. Mandatory during M&A, attracting investments, concluding large contracts.

2. Legal support

— involving the legal department in business decision-making at an early stage. It is cheaper to prevent a problem than to solve it.

3. Standardization of documentation

— template contracts agreed upon with lawyers reduce the probability of mistakes.

4. Insurance

— D&O (Directors & Officers) — insurance of directors' liability; Professional Indemnity — professional liability insurance; Cyber Insurance — cyber risks.

5. Monitoring changes in legislation

— regulatory changes can completely alter the business model (example: GDPR 2018 required a large-scale revision of data processing systems).

Legal risk is the risk of losses or negative consequences arising as a result of: (1) violation of legal norms, (2) failure to fulfill contractual obligations, (3) lawsuits from third parties, (4) changes in legislation, (5) inadequate legal documentation.

According to assessments by leading consulting firms, legal risks are among the top 5 risks for large corporations. Regulatory fines, litigation costs, reputational damage—all of this can cost companies billions.

Contractual risk — the risk that a contract will not be fulfilled or will be deemed invalid. Reasons: defects of will (fraud, coercion), non-compliance with the law, failure to perform essential conditions, force majeure. Example: a construction contract that does not specify the procedure for ch...

Regulatory risk — the risk of violating regulator requirements. For financial companies, this includes licensing (CB, DFSA, FCA), anti-money laundering legislation (AML/KYC), data protection (GDPR, Russian personal data law). Fines for violating the GDPR reach up to 4% of global turnover.

Commercial disputes can be resolved in various ways. The choice of mechanism is determined at the contract conclusion stage—in the dispute resolution clause. An incorrect choice can lead to years of litigation in an inconvenient jurisdiction.

Advantages: Enforcement through state mechanisms, appellate courts as a quality guarantee, precedents create predictability (in common law countries).

Disadvantages for international business: Foreign judgments are difficult to enforce (a recognition treaty is required), publicity (court hearings are open), duration (arbitrazh courts in Russia—3-6 months, English courts—2-3 years), language barrier.

Specialized commercial courts: DIFC Courts (Dubai)—a court with common law procedural rules, official language is English, judgments are enforceable in 50+ countries. Commercial Court (London)—the leading court for international commercial disputes.

Definitions

LLC (Limited Liability Company)

— optimal for small and medium-sized businesses with up to 50 members. The minimum charter capital in Russia is 10,000 rubles. Members are liable only within the limits of their contributions. Governance is flexible: a corporate agreement can be cus...

JSC (Joint Stock Company)

— for attracting investments through the issuance of shares. PJSC (Public Joint Stock Company) is traded on the stock exchange and required to make disclosures. Private JSC is for a closed group of shareholders.

Charter

— the main document of a legal entity. Contains: full and abbreviated name, location, scope of activity (in most jurisdictions — general legal capacity, all types of activities), size of the charter capital, management structure, decision-making pro...

Corporate Agreement (Shareholders’ Agreement)

— an agreement between participants regulating their relations: voting, sale of shares (lock-up, tag-along, drag-along), anti-dilution, exit from the business.

Before registering a company, it is necessary to answer several key questions: How many founders? Is limited liability required? Is external investment planned? Is public transparency of the structure needed? What is the tax burden?

LLC (Limited Liability Company) — optimal for small and medium-sized businesses with up to 50 members. The minimum charter capital in Russia is 10,000 rubles. Members are liable only within the limits of their contributions. Governance is flexible: a corporate agreement can be customized to suit ...

JSC (Joint Stock Company) — for attracting investments through the issuance of shares. PJSC (Public Joint Stock Company) is traded on the stock exchange and required to make disclosures. Private JSC is for a closed group of shareholders.

Charter — the main document of a legal entity. Contains: full and abbreviated name, location, scope of activity (in most jurisdictions — general legal capacity, all types of activities), size of the charter capital, management structure, decision-making procedure, rights and duties of members.

Definitions

General Meeting of Shareholders (GMS)

— the highest governing body. Makes key decisions: approves the charter, elects the board of directors, approves major transactions, reorganizations/liquidation. Ordinary questions are decided by a simple majority; strategic ones — by a qualified ma...

Board of Directors

— strategic guidance and oversight of management. Key functions: appointment and dismissal of the CEO, approval of strategy, supervision of the risk management and internal control systems, approval of major transactions.

Sole Executive Body (CEO/Chief Executive Officer)

— manages day-to-day activities. Reports to the board of directors. Personally responsible for decisions made.

Revision Commission / Audit Committee

— oversight of financial reporting, interaction with the external auditor.

Corporate governance is a system of rules, practices, and processes by which a corporation is directed and controlled. Good corporate governance ensures management's accountability to shareholders, protects the interests of all stakeholders, and provides transparency and sustainability.

The OECD Principles of Corporate Governance (2023) are the global standard to which regulators and institutional investors around the world look.

General Meeting of Shareholders (GMS) — the highest governing body. Makes key decisions: approves the charter, elects the board of directors, approves major transactions, reorganizations/liquidation. Ordinary questions are decided by a simple majority; strategic ones — by a qualified majority (3/...

Board of Directors — strategic guidance and oversight of management. Key functions: appointment and dismissal of the CEO, approval of strategy, supervision of the risk management and internal control systems, approval of major transactions.

Definitions

Merger

— the combination of two companies into one. It can be a merger of equals or an acquisition (one company is absorbed by another). In Russia, this is a reorganization in the form of a merger or accession.

Acquisition

— one company acquires control over another. It can be friendly (with management consent) or hostile (hostile takeover — through stock purchases or public tender offer).

Share deal

— acquisition of shares/interests in a company. The buyer acquires the company along with all assets AND liabilities (including hidden ones).

Asset deal

— acquisition of specific assets. The buyer can choose what to acquire. This protects against "inheriting" problems.

NDA (Non-Disclosure Agreement)

— confidentiality agreement, the first step. Protects sensitive information during negotiations.

Term Sheet / LOI (Letter of Intent)

— preliminary agreement on the main parameters of the transaction (price, structure, conditions). Usually non-binding but provides a framework.

SPA (Share Purchase Agreement)

— main share purchase agreement. Key elements: price and payment mechanism (fixed, with working capital adjustment, earn-out), representations and warranties, indemnities, closing conditions (Conditions Precedent), non-compete.

Escrow

— part of the price is placed in an escrow account for 1–2 years to cover potential buyer claims on the seller’s representations.

Merger — the combination of two companies into one. It can be a merger of equals or an acquisition (one company is absorbed by another). In Russia, this is a reorganization in the form of a merger or accession.

Acquisition — one company acquires control over another. It can be friendly (with management consent) or hostile (hostile takeover — through stock purchases or public tender offer).

Share deal — acquisition of shares/interests in a company. The buyer acquires the company along with all assets AND liabilities (including hidden ones).

Asset deal — acquisition of specific assets. The buyer can choose what to acquire. This protects against "inheriting" problems.

Definitions

Ordinary shares

— grant voting rights, the right to dividends (if a decision is made), and the right to the liquidation surplus as the last in line.

Preferred shares

— fixed dividend, priority upon liquidation, limited or no voting rights. Popular among venture investors (Preferred Shares with liquidation preference, anti-dilution).

Convertible instruments

— SAFE (Simple Agreement for Future Equity), convertible loans — provide the right to convert into shares at the next financing round. Popular at early startup stages.

Covenants

— restrictive conditions in favor of creditors: maintain a certain debt/EBITDA level, refrain from paying dividends above a limit, not sell key assets, maintain a credit rating. Breach of a covenant constitutes a “technical default”, giving creditor...

Secured vs unsecured bonds

— secured bonds have a pledge of specific assets; unsecured (unsecured/debentures) — no pledge, higher yield.

Subordinated debt

— in the order of creditors in bankruptcy comes after senior debt, before shareholders. A compromise between shareholder and creditor risks.

Conditions precedent

— documents and confirmations the borrower must provide to receive the funds.

Representations & Warranties

— borrower’s assurances regarding financial standing, absence of lawsuits, and the right to execute the transaction.

Collateral

— pledge of real estate (mortgage), equipment, accounts receivable, surety.

Events of default

— circumstances giving the bank the right to demand early repayment or to foreclose on the collateral.

Attracting financing is always a matter of legal relationships. Understanding the legal nature of the instruments allows for the proper structuring of a deal, protection of interests, and risk management.

A share is a security certifying the participant’s right to a portion of the charter capital and the right to receive dividends. Legal features:

Ordinary shares — grant voting rights, the right to dividends (if a decision is made), and the right to the liquidation surplus as the last in line.

Preferred shares — fixed dividend, priority upon liquidation, limited or no voting rights. Popular among venture investors (Preferred Shares with liquidation preference, anti-dilution).

Definitions

Deadlock

— a situation where parties with an equal number of votes cannot make a decision. For example, two partners with 50/50 ownership cannot agree on a strategy.

Minority Oppression

— actions by a majority shareholder that infringe upon the rights of a minority shareholder: non-payment of dividends, transferring profits to affiliated entities, denial of access to information.

Abuse of Corporate Rights

— using veto rights or a blocking stake to blackmail other participants.

Shareholders' Agreement

— a key tool. It should include:

Russian Roulette

— one partner names a price, and the other can either buy his stake at that price or sell his own stake at the same price. A tough mechanism but effective: it incentivizes naming a fair price.

Texas Shootout

— both partners make sealed bids to buy the other's stake; the winner is the one who offers more.

Compulsory Liquidation

— a last resort in the event of a complete deadlock: the company is liquidated and assets are divided.

Exclusion of a Member from an LLC

— a radical measure: the court may exclude a member whose actions have harmed the company or make its operations impossible. The excluded member receives the actual value of their share.

Internal corporate conflicts are one of the main threats to business. Partners who started a business together often diverge in their vision for development, profit distribution, or strategy.

Deadlock — a situation where parties with an equal number of votes cannot make a decision. For example, two partners with 50/50 ownership cannot agree on a strategy.

Minority Oppression — actions by a majority shareholder that infringe upon the rights of a minority shareholder: non-payment of dividends, transferring profits to affiliated entities, denial of access to information.

Abuse of Corporate Rights — using veto rights or a blocking stake to blackmail other participants.

Definitions

1. Offer and Acceptance

— one party makes an offer, the other accepts it. The offer must include all essential terms. The acceptance must be full and unconditional (a counteroffer is a new offer).

3. Legal Capacity of the Parties

— the parties must have legal capacity — legal entities act through authorized persons, individuals upon reaching the age of majority and possessing capacity.

4. Legality of Subject Matter

— a contract cannot obligate the parties to perform illegal actions.

5. Proper Form

— certain contracts require a written form or notarization (real estate, corporate transactions, large loans).

A contract is an agreement between two or more parties that creates mutual rights and obligations, the fulfillment of which is ensured by law. Not every promise constitutes a contract. The contract requires several elements.

1. Offer and Acceptance — one party makes an offer, the other accepts it. The offer must include all essential terms. The acceptance must be full and unconditional (a counteroffer is a new offer).

2. Consideration / Causa (in common law countries — consideration, in continental law — causa): each party must receive something and give something. A gift agreement without consideration is not a binding contract in common law.

3. Legal Capacity of the Parties: the parties must have legal capacity — legal entities act through authorized persons, individuals upon reaching the age of majority and possessing capacity.

Definitions

Non-performance

— complete refusal to fulfill the obligation.

Improper performance

— performance that violates the terms (delay, defects, incomplete volume).

Anticipatory breach

— a clear statement by a party that it will not perform the contract. In common law, this allows the other party to sue immediately without waiting for the due date.

Damages

— the main remedy. The goal is to put the injured party in the position they would have been in had the contract been properly performed.

Liquidated Damages / Penalty Clause

— a pre-agreed amount for breach. In Russia — fine or penalty. In common law — liquidated damages (a reasonable pre-estimate of loss) are valid; penalty clauses (punitive penalties) — courts may reduce.

Specific Performance

— the court requires the breaching party to perform the contract. Applied when monetary compensation is insufficient (unique goods, real estate).

Termination/Rescission

— the parties return to their original positions. Applied in case of material breach.

Force Majeure

— circumstances of irresistible force (war, natural disaster, epidemic), making performance impossible. Upon the occurrence of force majeure, the party is released from liability, but not from the obligation. COVID-19 generated thousands of disputes...

Hardship (Significant Change of Circumstances)

— performance of the contract has become excessively burdensome (but not impossible). Requires negotiations and possible revision of the contract.

Non-performance — complete refusal to fulfill the obligation. Improper performance — performance that violates the terms (delay, defects, incomplete volume). Anticipatory breach — a clear statement by a party that it will not perform the contract. In common law, this allows the other party to sue...

Damages — the main remedy. The goal is to put the injured party in the position they would have been in had the contract been properly performed.

Limitations: (1) Causation; (2) Foreseeability of losses at the time of entering into the contract (the rule from Hadley v. Baxendale); (3) Duty of the injured party to mitigate damages.

Liquidated Damages / Penalty Clause — a pre-agreed amount for breach. In Russia — fine or penalty. In common law — liquidated damages (a reasonable pre-estimate of loss) are valid; penalty clauses (punitive penalties) — courts may reduce.

Definitions

INCOTERMS

— international rules for interpretation of trade terms (ICC, latest revision — 2020). Determine who bears risk and expenses during delivery: EXW (ex works), FCA, FOB, CIF, DDP. For import/export, knowledge of INCOTERMS is mandatory.

Contracting work

— the contractor undertakes to perform work and deliver the result. Payment — for the result. Liability for quality.

Provision of services

— the service provider undertakes to perform certain actions. Payment — for the process. The boundary between contracting and services is important: it determines taxation and legal regime.

Instruction

— the attorney performs legal actions on behalf of and at the expense of the principal.

Commission

— the commissioner acts in their own name, but at the expense of the committent (commercial agent).

Agency agreement

— the agent acts at the expense of the principal, may do so in their own or the principal’s name.

Franchise Agreement

— the right holder grants the right to use the brand, business system, know-how in exchange for royalties. Strict control over standards.

The foundation of trade. The seller transfers the goods, the buyer pays the price. Key issues: moment of transfer of ownership and risk of accidental loss, quality guarantee, liability for hidden defects.

INCOTERMS — international rules for interpretation of trade terms (ICC, latest revision — 2020). Determine who bears risk and expenses during delivery: EXW (ex works), FCA, FOB, CIF, DDP. For import/export, knowledge of INCOTERMS is mandatory.

Contracting work — the contractor undertakes to perform work and deliver the result. Payment — for the result. Liability for quality.

Provision of services — the service provider undertakes to perform certain actions. Payment — for the process. The boundary between contracting and services is important: it determines taxation and legal regime.

An international contract is more complex than a national one: the parties are in different legal systems, speak different languages, and use different business practices. Key issues: applicable law, language, currency, dispute resolution, sanctions, and export control.

The UNIDROIT Principles of International Commercial Contracts (PICC) are an unofficial code of international contract law developed by the International Institute for the Unification of Private Law. The parties may choose them as the applicable law. They are distinguished by their balance and ind...

The United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) has been ratified by 95 countries, including Russia, most EU countries, the USA, and China. It applies automatically to contracts between parties from participant countries unless otherwise provided in t...

CISG covers: contract conclusion (offer, acceptance), rights and obligations of the parties, remedies for breach, risk transfer. Does not cover: validity of the contract, property rights, torts.

Definitions

Patent Troll

— companies that buy up patents without the intention to produce, exclusively for filing lawsuits. A serious problem for the IT industry.

Work for Hire

— the employer is the rights holder of works created by an employee within the scope of employment duties. It is important to stipulate this in the employment contract.

Trade Secrets vs Patents

— know-how does not require disclosure (as a patent does), but also does not grant monopoly — a competitor can arrive at the same knowledge independently.

Intellectual property (IP) refers to the results of creative activity that are granted protection by law. For modern businesses, IP is often more important than physical assets: the Apple brand is worth more than all its factories.

A trademark is a designation that allows goods/services of one manufacturer to be distinguished from another. It is registered with Rospatent, EUIPO (EU), or USPTO (USA). The protection period is 10 years with unlimited renewal.

Important: rights to a trademark have a territorial character. International registration is possible via the Madrid Agreement system (WIPO).

Infringement: the use of a designation confusingly similar for homogeneous goods/services.

When a Russian company sells goods to a German firm through a Singaporean intermediary, the question arises: which country's law governs the transaction? Conflict of laws—a clash of the laws of different states—is resolved through conflict of laws rules.

The fundamental principle is that the parties themselves select the applicable law. This is enshrined in most international agreements and national codes of private international law. Limitations: it is not permitted to circumvent mandatory rules (applicable regardless of the parties' choice) and...

If the parties have not chosen the law, objective conflict of law connecting factors are applied:

The Rome I Regulation (EU) codifies these rules for contractual obligations in the EU.

A foreign investor faces risks not typical for domestic investments: nationalization, changes in legislation, discrimination, denial of justice.

BIT (Bilateral Investment Treaty) — a treaty between two states for mutual protection of investments. Provides the investor with: most-favored-nation treatment (no worse than any other foreign investor), fair and equitable treatment (Fair and Equitable Treatment), protection against expropriation...

There are more than 3,000 BITs in the world. Russia has entered into about 80 BITs.

ICSID (World Bank) reviews disputes between foreign investors and states. ICSID decisions are enforced as the decisions of domestic courts in 160 member states of the Washington Convention.

Definitions

Holding company

— ownership of shares in operating companies. A BVI holding company is often used to structure Russian businesses for attracting Western PE/VC.

Investment funds

— Cayman Islands is the largest center for the establishment of hedge funds and PE funds.

Special project companies

— SPV (Special Purpose Vehicle) for securitization, project financing.

Asset protection

— trusts in Jersey/Guernsey for the protection of wealthy individuals.

CFC (Controlled Foreign Companies)

— Russian rules: if a Russian resident controls a foreign company, the undistributed profit of the CFC is included in their Russian tax base. Exception: active companies in “white” jurisdictions.

An offshore jurisdiction is a territory offering preferential tax regimes and simplified regulation for non-resident companies. Classic offshore centers: British Virgin Islands (BVI), Cayman Islands, Jersey, Guernsey, Panama, Seychelles.

Holding company — ownership of shares in operating companies. A BVI holding company is often used to structure Russian businesses for attracting Western PE/VC.

Investment funds — Cayman Islands is the largest center for the establishment of hedge funds and PE funds.

Special project companies — SPV (Special Purpose Vehicle) for securitization, project financing.

Definitions

Russia

— The Labor Code strictly regulates the grounds for dismissal. Wrongful dismissal results in reinstatement at work and payment of average wages for the period of forced absence. There is high legal pressure on the employer.

USA

— At-will employment (in most states)—the employer may dismiss for any reason (except discriminatory). Flexibility, but the risk of discrimination lawsuits.

United Kingdom

— Dismissal after two years of employment—only for a valid reason (redundancy, performance, conduct). Employment Tribunals—a specialized body.

UAE

— Since 2022—“groundless” dismissal entails compensation. Restrictions on dismissal of pregnant employees, during periods of illness.

Labor relations are regulated not only by contract—the state establishes minimum standards for the protection of workers, which cannot be bypassed by agreement. This is a restriction of the autonomy of will in favor of the weaker party (the employee).

Russia: The Labor Code strictly regulates the grounds for dismissal. Wrongful dismissal results in reinstatement at work and payment of average wages for the period of forced absence. There is high legal pressure on the employer.

USA: At-will employment (in most states)—the employer may dismiss for any reason (except discriminatory). Flexibility, but the risk of discrimination lawsuits.

United Kingdom: Dismissal after two years of employment—only for a valid reason (redundancy, performance, conduct). Employment Tribunals—a specialized body.

Bankruptcy (insolvency) is a court-recognized inability of a debtor to fully satisfy the claims of creditors. The purposes of the procedure are: (1) the fair distribution of assets among creditors, (2) providing the debtor with a "fresh start" (in consumer bankruptcy), (3) restructuring a viable ...

In bankruptcy, assets are distributed in strict order of priority: 1. Secured creditors (up to the value of the collateral) 2. Preferential creditors (employee wages, taxes) 3. Unsecured creditors 4. Subordinated debt 5. Shareholders (receive the remainder, usually nothing)

Restructuring (Chapter 11 in the USA, supervision/financial rehabilitation/external administration procedure in Russia) is an attempt to preserve the business by restructuring debts. The court protects the debtor from creditors during the restructuring period (automatic moratorium).

Liquidation is the sale of all assets and distribution of proceeds to creditors. The company ceases to exist.

Definitions

Lawsuits

— a business partner, client, or employee can file a multimillion-dollar claim. Even an unfounded claim requires costly defense.

Bankruptcy

— personal bankruptcy of an entrepreneur covers all their assets unless protected by special structures.

Divorce

— in most jurisdictions, assets acquired in marriage are divided between spouses.

Tax claims

— the state is the priority creditor.

Corporate raiding

— hostile takeover of a business through corporate or criminal mechanisms.

Risk separation

— the operational business (source of risks) must be separated from key assets (real estate, intellectual property, cash). For example: the operating LLC does not own the building— it rents it from a separate company.

Early planning

— the structure must be established before the onset of claims. Transfers of assets at the moment problems arise are transactions subject to challenge.

Multi-layered approach

— several jurisdictions and structures create “legal barriers” for creditors.

Asset Protection is the legal structuring aimed at minimizing the risk of losing property due to lawsuits, bankruptcy, divorce, or dishonest actions of third parties.

Important: asset protection is lawful legal planning. The transfer of assets for the purpose of evading known obligations is a fraudulent transfer, which courts set aside.

Lawsuits: a business partner, client, or employee can file a multimillion-dollar claim. Even an unfounded claim requires costly defense.

Bankruptcy: personal bankruptcy of an entrepreneur covers all their assets unless protected by special structures.

Definitions

Discretionary trust

— the trustee has the right of discretion: which of the beneficiaries and in what amount to distribute the assets. Maximum protection from the settlor’s creditors.

Fixed trust

— the shares of beneficiaries are predetermined.

Revocable trust

— the settlor can revoke the property. Less protection, more control.

Irrevocable trust

— the settlor cannot revoke the property. Maximum protection, minimal control.

A trust is a legal construct of common law, in which one person (settlor) transfers property to another person (trustee) for management in the interests of third parties (beneficiaries). Legally, the property belongs to the trustee, but economically—to the beneficiaries.

A trust is not a legal entity—it is a legal relationship. This is precisely what makes it a unique instrument: assets leave the settlor’s ownership, but are managed according to their wishes.

Discretionary trust—the trustee has the right of discretion: which of the beneficiaries and in what amount to distribute the assets. Maximum protection from the settlor’s creditors.

Revocable trust—the settlor can revoke the property. Less protection, more control.

Definitions

Will

— the basic tool. But it does not solve the problem of continuity for the business during the period when the inheritance is being processed (6 months in Russia).

Shareholders’ Agreement

— can stipulate: the right of other partners to buy out the heir’s share, prohibition on entry of the heir into the company without the consent of the others, procedure for valuing the share for buy-out.

Trust / Private Foundation

— business assets are transferred into a trust, the trustee manages them according to instructions from the founder, including after his death. Smooth transfer without interruption of management.

Life Insurance

— key partners buy-out: if one partner dies, the insurance payout enables the remaining partners to buy the heir’s share. The business remains in the hands of current managers, the family receives the money.

Transferring a family business by inheritance involves challenges not typical for ordinary inheritance: (1) the business must not simply be transferred, but its continuity ensured; (2) there may be several heirs with different interests; (3) business partners may not want to see new heirs as part...

Will — the basic tool. But it does not solve the problem of continuity for the business during the period when the inheritance is being processed (6 months in Russia).

Shareholders’ Agreement — can stipulate: the right of other partners to buy out the heir’s share, prohibition on entry of the heir into the company without the consent of the others, procedure for valuing the share for buy-out.

Trust / Private Foundation — business assets are transferred into a trust, the trustee manages them according to instructions from the founder, including after his death. Smooth transfer without interruption of management.

Definitions

Cartels

— horizontal agreements between competitors to fix prices, divide markets, or restrict production. Hardcore cartel — a criminal offense in most jurisdictions. Penalties: up to 10% of global turnover in the EU, up to 15% in Russia.

Abuse of Dominant Position

— a company with a market share >50% (in Russia — >35% under additional conditions) cannot: set monopoly-level high prices, apply discriminatory terms, or create barriers to market entry.

Anti-competitive Mergers

— The FAS Russia, European Commission, and FTC review large M&A deals for substantial restriction of competition. They can prohibit deals or require asset divestitures.

Monopoly and cartels harm consumers: they inflate prices, lower quality, and hinder innovation. Antitrust (competition) law is intended to maintain effective competition.

Cartels — horizontal agreements between competitors to fix prices, divide markets, or restrict production. Hardcore cartel — a criminal offense in most jurisdictions. Penalties: up to 10% of global turnover in the EU, up to 15% in Russia.

Abuse of Dominant Position — a company with a market share >50% (in Russia — >35% under additional conditions) cannot: set monopoly-level high prices, apply discriminatory terms, or create barriers to market entry.

Anti-competitive Mergers — The FAS Russia, European Commission, and FTC review large M&A deals for substantial restriction of competition. They can prohibit deals or require asset divestitures.

Regulatory law establishes rules for operations in licensed sectors: finance, healthcare, transport, energy, telecommunications. The objective is the protection of public interests (safety, financial stability, consumer protection).

Russia: The Bank of Russia is the mega-regulator (banks, insurance companies, brokers, microfinance organizations, pension funds). Licenses: banking, brokerage, dealing, asset management company. Violation leads to license revocation.

UAE: DFSA (Dubai Financial Services Authority) is the regulator in DIFC. License categories: Authorized Firm (asset management, brokerage, consulting). FSRA is the regulator in ADGM. Strict capital requirements, AML/KYC.

United Kingdom: FCA (Financial Conduct Authority) is the regulator of most financial services.