Pros & Cons of Unrestricted Free Agency

The surprising success of the film “Windtalkers” created a sudden sensation in the Russian market – it was even banned in the USA. The film depicts a Shi’ite community in the ancient city of Ufa, as they try to hold off the advancing power of the Turkish army from taking their city. The film’s director, Vasily Lobanov, told me over the phone from Russia that the real place of Ufa is very different than what we imagine. “You’ll find no FSA sign, no trash cans in the streets, no graffiti, not even the FSA in the coffeehouses,” he said. The only signs of FSA presence in Ufa are a few FSA checkpoints in the outskirts and one FSA checkpoint in front of an old school.

It was interesting to learn that the character in the film who is called Windtalker was originally the son of an expelled Turkoman officer and that he had joined the rebels only to find out that the government had rounded up and executed all of its top UEA officials. He then decided to run for president against the incumbent and won handsomely. But not everyone was happy with his victory and he ended up losing the subsequent election. This is why the character of Windtalker ended up on Ufa soil.

As I said, the interesting thing about Ufa is that its main attractions lie in its unique model of co-operative ownership and that these characteristics are being spread to other Russian regions. Unlike the Dubai Investment Authority (UAE) and other planned Islamic financial institutions that rely solely on fees from members for doing business, the Russian model encourages a free flow of capital. Therefore, property owners in Ufa can freely trade and gain interests in property that might otherwise be sold to others without their knowledge or consent. There are also no restrictions on trading and there are no capital gains tax implications associated with this.

The way in which Ufa works means that properties held through patronage are not immediately accessible by shareholders but rather will be transferred to a trust account during the course of regular payments. When a payment is made to this trust account, the balance is then divided between the owner and the investors. If the balance in the account is still surplus, it can then be turned into a direct deposit into the resident shareholder’s account.

Because it has no capital gains tax associated with investment shares, there is little to lose. And because there are no penalties for early or inaccurate payments, there is no incentive to delay making a payment. As with all investment transactions, an Ufa purchase will be taxable and as such the profits should be declared. However, a potential Ufa buyer should be wary of any commissions charged because in Russia those charged are typically twice the actual amount earned from the property. This is because the property is sold under a patronage dividend and therefore the seller of the property will be paid a commission.

Another potential downfall to UFA is that there may be no restrictions on whom a shareholder can choose as a sponsor. A Ufa advisor may recommend two people as sponsors but if one of those people is a nonresident of Russia then the second person will not be entitled to the dividend. This can be problematic and in the cases of businessmen it is often a deciding factor whether or not a partnership is set up as a limited company. It would be wise to consult a lawyer that specializes in Russian law before making any investment decisions in UFA. There are strict laws regarding Russian law relating to UFA and limited companyorporation so it would be a good idea to understand these before investing. Again, a lawyer that specializes in Russian law will be best suited to make this determination for you and advise accordingly.

The risks associated with ufa are a great deal less than they used to be. Back in the day a person could lose his entire membership shares in ufa as a result of something such as a default by the advisor. In the modern age, things aren’t quite so bleak. As stated earlier a company can elect to liquidate its membership shares and that will only leave the members with a cap on the value of their membership. Therefore, even though an advisor may recommend a member share equity approach that will likely go against the wishes of the Russian government you are unlikely to see any ill effects such as the dissolution of ufa. Of course, it will never hurt to have a professional consult your understanding of ufa and its cap.

So, there are some pros and cons of ufa but it comes down to a simple matter of whether or not the benefits outweigh the disadvantages. If you find you have made an informed decision you should definitely proceed with your new team registration. However, there are also a number of cons and pitfalls to be aware of. Before you invest a lot of time and energy in completing your ufa there is no doubt that you have made an excellent decision but make sure you take all precautions necessary before investing your hard earned cash.