Doing Business in Russia
Types of companies in Russia
According to the Russian Company Law, there are several available types of companies that can be set up. All types can be divided into 2 categories: commercial and non-commercial companies.
Commercial type:
Full partnerships
Limited partnerships
Business (economic) partnerships
Limited liability companies
Joint stock companies
Peasant (farming) households
Production cooperatives
State and municipal unitary enterprises
Partnerships
A partnership is a commercial (business) organization with partnership capital divided into share parts.
The Russian law defines two forms of incorporated partnerships:
unlimited (general) partnership
limited partnership
Both forms of partnerships are legal entities
A partnership is formed on the basis of the contract for unlimited partnership/limited partnership (partnership agreement) by at least two parties
Partnerships are liable with all their assets
Profits and losses of an unlimited partnership/limited partnership are distributed between the partners pro rata to their shares in the partnership capital, unless otherwise provided by the partnership agreement.
Partnerships are subject to bankruptcy proceedings according to general rules provided by the Russian law
A limited partnership implies two types of participants:
The general partner
The limited partner
The general partner will be liable with all of his assets, while the limited partner will be accountable only to the extent of his contribution. The general partner will be in charge with the management of the partnership, while the limited partner will be allowed to participate to the meetings, but cannot make decisions for the company.
The economic partnership
is designed for the new technology sector and is meant to provide more flexibility for its participants than the existing LLC and JSC forms. In general terms, an economic partnership shares many common features with a Russian LLC but with the advantage that the rights and obligations of participants, the management of the company and profit distribution are regulated by a much more flexible and less regulated notarised management agreement.
The prohibition on an economic partnership acquiring or holding shares/interests in other companies and partnerships and on advertising its business generally precludes the use of this business structure for commercial trading operations or as holding companies for joint ventures.
LLC
A limited liability company is designated by the abbreviation “OOO” or “LLC” before or after its name. It is one of the simplest forms of a Russian legal entity and is often used by foreign investors for a wholly owned subsidiary.
The establishment, reorganisation and liquidation of an LLC is mainly governed by:
The Civil Code
Federal Law No. 14-FZ “On Limited Liability Companies” dated 8 February 1998 (the “LLC Law”)
Federal Law No. 129-FZ “On State Registration of Legal Entities and Individual Entrepreneurs” dated 8 August 2001 (the “Registration Law”)
Setting up an LLC can be achieved a minimum share capital of 10 000 rubles ($ 130), the maximum amount of an authorized capital is unlimited. LLC requires 1 director and 1 shareholder. This way, LLCs can be equally formed be one person, several people, or by local or foreign corporate entities.
Participants involved in LLC are not responsible for the company’s obligations or the losses associated with the LLC. The LLC participants are only responsible for the amount of participation value they established with the company through the company’s charter.
As long as the company charter specifies it, those involved with a Russian LLC can, whenever they wish, withdraw from the corporation and get an amount that is equivalent to its pro rata share of the corporate net assets.
LLCs do not need to issue shares. This way, LLC is flexible when the company needs to change its charter capital.
A Russia LLC must have a local registered agent and a local office address. This address will be used for process service requests and official notices.
The LLC must submit audited financial statements annually to the Government.
Russia LLC are formed with the following management system:
The executive body of the company (general director, president, etc.) or the collective executive body of the company (management board, the directorate, etc.) The executive body is running the day-to-day activities of the company.
Federal Law on “Limited Liability Companies” allows a LLC to create a Board of Directors. If such a board is formed, it must oversee the company’s general activities.
The General Participants’ Meeting, which acts as the body in the company with the most power.
Russian legislation prevents an LLC being wholly owned by another company, where that holding company is itself wholly owned by (i) another single legal entity; or (ii) a single individual.
Joint-stock companies
Joint-stock companies belong to corporations as well and are regulated by the Civil Code, Federal Law No. 208-FZ “On Joint-stock Companies” dated 26 December 1995 (the “JSC Law”), the Registration Law and Federal Law No. 39-FZ “On Securities Market” dated 22 April 1996 (the “Securities Market Law”) and the acts issued by the Central Bank of Russia.
A joint-stock company can either be:
Public
According to the amendments as of 2014 to the Civil Code of Russian Federation, joint stock company is considered public if its shares are publicly distributed (by way of public subscription) or are publicly traded on conditions set forth by the securities law, which results in their activity being more stringently regulated by law.
Private (non-public)
The other joint stock companies (and limited liability companies) are considered to be (non-public).
JSC can be established under its founders’ agreement, which defines the order of establishment of the company, its share capital, types of shares, share allotment and other conditions.
All JSCs are required to maintain a register of shareholders reflecting the current number of shareholders and the distribution of shares by number and category. A register of shareholders of a public JSC should be maintained by an independent licensed organization.
JSCs are obliged to keep accounting records and submit financial statements. Annual audit is mandatory.
JSC’s capital is divided into shares; the members of JSC (shareholders) are not liable for the company’s obligations and bear the risk of losses related to the JSC’s activities within the cost of the shares they possess.
The minimal amount of authorized capital set forth for private JSC is $ 135 and $ 1 344 for public JSC.
Public JSCs are obliged to disclose the information prescribed by the law.
The management bodies of JSC are:
General meeting of shareholders
Board of directors (or supervisory board)
Executive body (either a sole director or director and a management board)
Private JSCs enjoy more flexibility:
The powers can be distributed between corporate bodies in various ways (e.g. management bodies can take over most questions of the general shareholders’ meeting)
The management bodies themselves can be omitted (e.g. the board of directors can act both as a management and supervisory body, a single director may replace the management board)
The charter may require a qualified majority of votes to adopt certain decisions of the management bodies
Shareholders may define shareholders’ rights in the charter non-proportionally to their stakes in the company, limit the number of shares or votes held by one shareholder, provide for a pre-emptive right or consent on transferring shares to a third party.
Individual entrepreneur
Individual entrepreneurship is one of the most popular forms of business today in the Russian Federation, which is an excellent option for small businesses. An individual entrepreneur is a Russian citizen registered in accordance with the law and engaged in business without forming a legal entity.
In the Russian Federation the registration of individual entrepreneurs is regulated by:
Government decrees and federal laws
Civil Code of the Russian Federation
Federal law N 129-Federal Law “On state registration of legal entities and individual entrepreneurs”. Latest amendments to the Federal Law entered into force on 19th October 2020.
If a person is a foreign citizen or a stateless person and has the intention to carry on business in Russia without forming of legal entity as a sole proprietor, the following steps have to be taken:
Manufacture the seal.
Obtain a part or full-time residence in the Russian Federation.
Define the scope of your business.
Prepare the set of the required documents for registering.
Fill the required documents to the register office.
Receive the incorporation documents.
Open a bank account.
After registering as an entrepreneur, a businessman must become registered with the Pension Fund, purchase a cash register if necessary (and register it with the tax authority), and open a checking account in any bank.
If an individual has a change in any data (changed his passport, address of registration, etc.), he is obliged to report it to the registering authority, having applied to it again with a statement within 3 days from the date of the change.
Register in the Pension Fund and the social insurance fund should be in the case when the individual entrepreneur intends to use the work of hired workers. This should be done in up to 5 working days from the date of hiring the first employee.
More detailed information: https://www.nalog.ru/eng/how_to/htbie/
Investment fund
An investment fund is an economic mechanism designed to accumulate capital and its subsequent placement. Its work is supervised by a special management company or a single specialist.
The concept of an investment fund includes not only investment funds themselves but also some organizational and legal forms of business (individual trusts, holding companies, etc.).
Investment funds are regulated at the legal level by the Federal Law №156 “On investment funds”. It is possible to open both a share and joint-stock investment fund.
The procedure of opening a mutual investment fund (IF):
Search for a management company that will cooperate with the newly created IF. (It is possible to open own management company)
Necessity to draw up the Charter and have an initial capital
Conclusion of an agreement with the management company
Drawing up necessary documents establishing regulations and its acceptation
State registration procedure
Opening a transit account and a personal account of the management company in the bank for the formation of a unit investment fund
The beginning of accepting applications from buyers of units, personal accounts are opened for the acquirers of these units
The property of the IF is included in the structure of the property of the Share IF
Representative office of a foreign company
A representative office is an office of a foreign company in Russia established to perform support functions for that foreign company. It is not a legal entity but a sub-division of the foreign company that established it.
Representative offices of foreign companies (except for banks) must be accredited by the Federal Tax Service of the Russian Federation.
Representative offices may employ local and foreign staff, rent office space, open Russian bank accounts.
Representative offices are not expected to engage in commercial activities or generate profit. They may engage in activities that involve cooperation between Russian and foreign entities as, for example, marketing and promotion, etc.
