Natalia Demina has discussed prospects and risks of private funds with RBC Pro

Joint wills of spouses, inheritance funds, private funds, and inheritance agreements — these legal structures were introduced into Russian legislation in 2022, just as wealthy Russian testators began facing challenges using similar instruments in the West. Among these, the private fund has emerged as the most promising and sought-after mechanism, offering solutions for succession planning, taxation, corporate governance with ownership anonymity, and protection against hostile takeovers.

At the request of RBC Pro, legal market experts shared notable case studies and sensitive aspects of private fund establishment.

According to Natalia Demina, Partner & Head of Private Wealth Practice at Maxima Legal, the ability to consolidate assets and ensure confidential ownership makes private funds particularly attractive to public officials and individuals holding government positions. She clarified for RBC Pro that current legislation does not prohibit them from establishing private funds. However, there are reporting obligations for officials who create such funds, participate in their management, or receive distributions from them. For instance, a public official must obtain employer approval before establishing a fund (unless the founder has waived the right to amend the fund’s charter) and must subsequently declare any income received as a beneficiary. Structuring requires extreme caution: if a private fund engages in active profit-generating activities while the official holds a regulatory role with authority to approve certain transactions, there is a risk of violating the ban on entrepreneurial activity under the Federal Law No. 79-FZ.

Natalia also highlighted existing flaws in the mechanism:
“Contributing assets to a private fund by third parties has proven nearly pointless—or at least prohibitively expensive. This option initially held great potential, whether for spouses and close relatives to replenish the fund or for removing assets from nominal holders. Clients were eager for it. But the consequence? A tax on contributions as taxable income. If future legislation exempts third-party targeted contributions from corporate profit tax, private funds could become a viable tool for consolidating assets with complex ownership structures. For now, we’re in a holding pattern.”

To read the full article (in Russian), please see RBC Pro website >>>