Development of the instruments for direct financing of small and medium-sized business: the legal aspect

Introduction: the experience of the European countries proves that venture capital investment into knowledge-intensive industries is the most important instrument of a country’s economic development. One of the barriers standing on the way of venture capital financing in Russia is the absence of legal regulation in this sphere that would comply with the modern economic relations. The purpose of the article is to solve the problem meaningful for the Russian civil law - to develop legal mechanisms that would ensure development of the instruments for direct financing of small and medium-sized business, including the following: organizational-legal forms for venture funds from the perspective of economic entities, simple partnership, trust management of property, economic partnership and the investment partnership agreement; organizational-legal forms for the investment recipient from the perspective of economic partnerships and economic entities; contractual constructions which would allow business angels and other private investors to make investment deals on fair terms. Methods: general scientific (dialectical) method of cognizing scientific concepts of civil and corporate law; specific scientific methods of cognition: formal juridical, historical legal, the method of comparative legal study. Results: the strategy of the small and medium-sized business development in the Russian Federation for the period until 2030 uses such instruments of direct financing as venture capital financing, angel investment, hybrid (mezzanine) financing. At the same time, so far there is no legal ‘infrastructure’ which would make it possible to apply the above instruments. Specifically, Russian civil law does not provide for an optimal organizational-legal form which could as much as possible take into account specific features of the venture fund: creation of a corporation is not feasible in terms of taxation; contractual forms of the simple partnership and trust property management do not allow for a managerial impact; the investment partnership has not become widespread practice. For lack of a special organizational-legal form for the investment recipient and owing to inapplicability of the economic partnership form to the above relations, the only available way is to use economic entities with the help of instruments that secure additional rights of investors - corporate agreement in limited liability companies and preferred stock in joint stock companies. The authors also discuss the uniqueness of such a direct financing instrument as attracting temporarily free funds of business angels, being extremely unpopular in Russia, and come to a conclusion that in the country there is no national ecosystem of angel investing and the respective culture. Conclusions: for solving the above problems, the authors propose developing a complex regulation of venture financing at the level of the special federal law ‘On Venture Investment Activity in the Russian Federation’ and creating the respective ecosystem in the regions.