Use of Options in Sale of Shares Structuring

In this scientific work the author researches the problem of using options for structuring of postponed transfer of shares of non-public joint-stock companies. Its relevance is confirmed by common use of English law as applicable to such agreements, due to which the efficiency of contracting may suffer. This research’s goal is to study the degree of security of the economic interests of the parties in the most frequent situations of transfer of corporate control under the sale of shares structured with options under Russian law and the resolution of a number of legal problems associated with such a transfer. In the first section of the research a study of legal regulation of options and accumulated judicial practice before and after full implementation of option structures in the Civil Code of the Russian Federation are presented. It is concluded that, despite a number of legal problems associated with lacking experience in enforcement and legislator’s attention, the current regulation allows to ensure the efficient postponed transfer of shares. The basic principles of option agreements in English law were named and their features for structuring the transfer of shares in Russian companies were highlighted. In the second section of the research three most common cases in practice of using options to ensure postponed transfer of corporate control and their effectiveness under Russian law of obligations were described. Tag and drag options governing the minority shareholder’s participation in the majority shareholder’s withdrawal have proven to be effective in ensuring the economic interests of the parties. With regard to penal options, it is concluded that they need to be structured under English law. The options used to resolve corporate conflicts, in turn, are recognised as a legally inefficient mechanism, regardless of the applicable law. In the third section of the research possible ways of resolving three legal problems that are associated with the exercise of any options for the transfer of shares are described. Automation of such transfer was proven to be possible using contracts with the registrar or depository and escrow accounts, the effectiveness of which has not yet been proven in practice. In addition, universal rules were presented for formulating the option conditions, compliance with which avoids difficulties at the stage of proving their occurrence. The prohibition of the unfair disposal of shares by their owner prior to exercise of the option, as it was found, can be ensured by making an appropriate entry in the registry or depo account, which was also not sufficiently tested by practice. Following the results of the study, all allotted tasks were achieved. The further scientific development of the proposed topic is possible by expanding the subject of research on the transfer of shares of public joint-stock companies and the practice of depositories.