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The future of the fractional share institution

The future of the fractional share institution

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The fractional share institution was legally formalized in Russia of January 1st of 2002, after the respective amendments to the Federal Law No. 208-FZ “On joint-stock companies” dated 26.12.1995 (hereinafter – the JSC Law). Article 25 of the JSC Law was expanded by including one clause, which contained the explanation of a fractional share as a separate object of civil rights. Until then, fractional shares were not recognized as shares, being a temporary, transitional thing, and therefore were not objects of civil rights.

Article 25 of the JSC Law contains no direct definition of a fractional share, and only mentions its indicators and when it arises. As there is no direct and clear definition of a fractional share, and the clause states that a fractional share grants the amount of rights corresponding to the fraction of a whole share, which it represents, lawyers have a lot of questions, when studying the main indicator of a fractional share, namely – the correlation between a whole and a fractional share. According to M.V.Pliuschev, a whole share and a fractional share representing a fraction of that whole share cannot exist simultaneously (equally) as objects of civil rights. Besides, a whole share and an fractional share cannot correlate in a general philosophical sense as a whole and a part thereof, since fractional shares may form or not form a whole share when added together, but they can exist separately and independently from other whole shares.

While in agreement with the above, it would be reasonable to eliminate the words “which it represents” from clause 3 of Article 25 of the JSC Law, which would eliminate the contradiction and further disputes on the matter.

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