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3.5.4. An extract from the register of foreign legal entities of the respective country of origin of the founder (or any other proof of equal legal force), as to the legal status of the foreign legal entity
This document is formalized according to the legislation of the foreign state in which a founder (the given legal entity), is registered.
3.5.5. A Document Confirming the Payment of the State Fee
The document confirming the payment of the state fee is issued by the bank or other organization which paid the state fee. Currently, the fee for the state registration for the creation of most legal entities is 4000 rubles (Article 333.33 of the Tax Code of the RF).
3.6. Submission of Documents to the Registering Body
While establishing a profit organization, documents shall be submitted to the territorial authorities of the Federal Tax Service of Russia. The concrete office of the FTS of Russia is defined depending on the planned location of the sole executive body of the establishing legal entity. If the founders plan to place this body in Moscow, documents must be submitted to the Interdistrict Inspectorate of the FTS of Russia No. 46 for Moscow.[31 - The FTS of Russia No. 46 of the city of Moscow is located at the address: 125373, Moscow, Walking Passage, household 3, building 2.]
Documents can be submitted personally, by mail, or via the internet (the latter requires an electronic signature).
While creating a non-profit organization, documents shall be submitted to the territorial authority of the Ministry of Justice of Russia, which makes decisions on the state registration of the non-profit organization.
3.7. Receipt of the Documents by the Registering Body, Confirming the Registration of the Establishment of the Legal Entity
The state registration of the establishment of profit organizations is carried out in a period of no more than 5 business days from the date of submission of the documents to the FTS of Russia. After the specified period, the applicant can use the same address of the territorial FTS of Russia, where he/she shall be provided with certificates on state registration, and the statement on tax accounting.
At the registration of a non-profit organization, the territorial body of the Ministry of Justice is obliged to make a decision on registration within 14 business days from the date of the submission of documents. After the adoption of this decision, the territorial authority of the Ministry of Justice of Russia sends the documents independently to the FTS of Russia, which is obliged to register the organization within 5 business days. The territorial authority of the Ministry of Justice of Russia issues a certificate of state registration within three business days from the date of receipt of information from the registering body, and enters this information of the non-profit organization into the USRLE.
3.8. Reorganization and Liquidation of Legal Entities
3.8.1. Reorganization
Clause 1 of Article 57 of the CC of the Russian Federation provides 5 possible forms of reorganization:
i) Merger
At a merger of two organizations, a third, new organization is formed (formula A+B→С). Thus, the rights and duties of the existing organizations are transferred to the newly created one.
ii) Accession
One organization is absorbed by the second, thus the second continues to exist in the updated form (formula A+B→B). Thus, the rights and duties of first organization are transferred to the second one.
iii) Division
The organization ceases its existence, and with its assets, new organizations are created (formula А→B, C). Thus, the rights and duties of the existing organization are transferred to the newly created ones, according to the Transfer Act.
iv) Spin-off
A new organization is spinned from the organization, therefore the old organization continues to exist (formula А→A, B). Thus, some rights and duties of the existing organization are transferred to the newly created one, according to the Transfer Act.
v) Transformation
The organization changes its organizational-legal form (formula А→А). Thus, the rights and duties of this legal entity do not change (except for the corporate rights and duties).
The combination of various forms in the course of reorganization is allowed (for example, merger plus transformation).
The decision on reorganization is made by a general meeting of the legal entity's participants, or the legal entity's other managing body which is authorized to act in this way as per the charter. In addition to the aforementioned decision, this body sets the conditions of reorganization and implementation, and approves of the transfer act.
After entering into the USRLE a record about the commencement of the reorganization procedure, a notice about the reorganization is published twice in mass media (once a month). The creditor of the legal entity, whose claim rights have been established before the publication of the first notice of the reorganization of the legal entity, has the right to (1) demand early payment of the corresponding obligation by the debtor in a judicial proceeding, or (2) at the impossibility of early payment, demand a termination of the obligation, and compensation for the related losses (Clause 2 of Article 60 of the CC of the RF).
3.9. Liquidation
The decision on liquidation is made by the general meeting of legal entity's participants, or the legal entity's other managing body which is authorized to do so, as per the charter. This body appoints a liquidation commission (or an individual liquidator), to establish the order and terms of liquidation. From the moment of the appointment of the liquidation commission, all powers of management of the liquidated legal entity are thereby transferred.
The liquidation commission publishes a message in mass media about the legal entity's liquidation, as well as about the procedure and term of the claims application made by its creditors.
In the event that the liquidated organization has insufficient property to satisfy all creditors' claims, the liquidating commission is obliged to appeal to the arbitration court with an application for bankruptcy. The Civil Code of the RF establishes the priority order for the satisfaction of creditors' claims in Article 64.
A legal entity which hasn't submitted documents on reporting, and has not carried out transactions on bank accounts within 12 months, is subject to liquidation (Article 64.2 of the CC of the RF).
3.10. State Registration of Reorganization and Liquidation
A legal entity is considered reorganized from the moment of the state registration of legal entities that have been created as a result of reorganization. At the reorganization of a legal entity, for matters of accession, the first entity is considered reorganized from the moment the record is entered into the USRLE, concerning the termination of the activities of the acceded legal entity (Clause 4 of Article 57 of the CC of the RF). The legal entity is considered liquidated from the moment the corresponding record is entered into the USRLE.
State registration procedures of reorganization and liquidation are established in the Federal Law on Registration. In general, they are similar to the registration procedure of the legal entity's establishment.
3.11. Managing Bodies; Responsibility of Authorized Officers; Branches and Representations
3.11.1. Managing Bodies of the Legal Entity
Legal entities of various organizational-legal forms have various managing bodies. As a rule, among the managing bodies of a legal entity, the following are included:
i) the highest collegial body (in corporate organizations, this is the general meeting of participants),
ii) the sole executive body,
iii) the executive board,
iv) a revision commission.
The instructions for the obligatory formation of bodies are contained not only in federal laws dedicated to separate organizational-legal forms, but also in laws regulating different types of activities. Thus, Article 26 of the Federal Law on Education stipulates that the educational organization, regardless of its organizational-legal form, must form a collegial management body, which is a general meeting of the employees of the organization.
The corporation’s charter may stipulate that the powers of the sole executive body are given to several persons. Additionally, it is possible to create several sole executive bodies that act independently from each other in a corporation. These rules have been introduced in the CC of the RF recently, therefore the practical application of these rules is still in development.
The natural person (general director, president, chairman), individual entrepreneur (managing director), and legal entity (management company) can act as the sole executive body of the corporation.
3.11.2. Responsibilities of the Person Authorized to Act on Behalf of a Legal Entity; Responsibilities of the Members of the Executive Board of the Legal Entity; and Persons Determining the Actions of the Legal Entity (so-called "removal of a corporate veil")
A person who is granted with the right to act on behalf of a legal entity, as per a legal act or a constituent document, bears liability for losses caused to this legal entity by his/her fault. Conditions of the responsibility of the named person are dishonesty or unreasonableness of its actions. In similar cases, responsibility is also incurred by members of executive board who voted for the decisions of the legal entity which led to losses; or dishonestly evaded from participation in voting. Finally, persons, who have the opportunity to determine the actions of the organization, are liable for losses of the legal entity caused by their guilty actions (Article 53.1 of the CC of the RF).
3.11.3. Representations and Branches of the Legal Entity
Any legal entity has the right to have representations and/or branches. According to the CC of the RF, the representation is a separate division of the legal entity, and is located outside of its primary address. The representation can:
i) represent interests of the legal entity,
ii) exercise their protection.
The branch differs from representation by exercising any functions of the legal entity, including the functions of representation (Article 55 of the CC of the RF).
4. Certain Types of Legal Entities
4.1. Corporate Profit Organizations
4.1.1. General Provisions on Economic Partnership and Companies
Economic partnerships and companies have many features in common. Paragraph 2 of chapter 4 of the CC of the RF contains the general provisions on partnerships and companies. These norms appeared in the CC of the RF recently, and they should be taken into account when dealing with partnerships and companies.
4.1.1.1. Charter (Share) Capital of Economic Partnership and Companies
The charter (share)[32 - Economic companies have charter capital, and economic partnerships have share capital. Everything written in the present chapter on charter capital applies to the joint capital as well.] capital of economic partnerships and companies is divided into parts (shares in a limited liability company and economic partnerships, stocks in the joint stock companies), which give corporate rights to the owners of these shares. Charter capital is the minimum possible size of property of the legal entity expressed in a monetary equivalent. The size of charter capital is established by the legal entity itself and is specified in its charter. Besides, information on the size of legal entity's charter capital is contained in USRLE, and anyone can receive information on it, having ordered an extract from the register.[33 - It is possible to receive information on legal entity from official source on the site of the FTS of Russia at: http://egrul.nalog.ru/]
The share size (number of stocks) at the stage of the creation of the legal entity depends on the cost of the property which the participant brought to the charter capital of the legal entity.
4.1.1.2. Contributions to Property of Economic Partnerships and Companies
Unless otherwise stated in law, as a contribution to the property of the company, participants can bring:
i) money,
ii) goods,
iii) shares (stocks) in the charter (joint) capitals of other economic partnerships and companies,
iv) state and municipal bonds,
v) exclusive rights, other intellectual rights, and rights by license contracts, which are subject to a monetary assessment.
4.1.2. Economic Companies
4.1.2.1. General Provisions on Economic Companies
Issues of interaction of economic companies’ participants (among themselves and with the company), issues of management of economic companies, receiving of profits by participants, establishment, reorganizations, and liquidations of economic companies (corporate-legal issues of economic company’s activities) are regulated by norms of the CC of the RF, as well as by the Federal Law on Limited Liability Companies and the Federal Law on Joint Stock Companies. Currently, Russian corporate law is in a period of deep reformation. Recently the norms of the CC of the RF devoted to legal entities (chapter 4 of the CC of the RF) were essentially changed. The main changes were made by the Federal law No. 99-FZ (as of May 5, 2014), and came into force on September 1, 2014. According to Clause 4 of Article 3 of Federal Law No. 99-FZ (as of May 5, 2014), legal acts (all laws and subordinate legislation) apply only to the extent that they do not contradict with the changes made to the CC of the RF by the present federal law. This should be taken into account when dealing with the FL on Limited Liability Companies and the FL on Joint Stock Companies.
4.1.2.1.1. Types of Legal Entities
In the Russian Federation, the following types of the legal entities exist:
i) Limited Liability Company (LLC),
ii) Joint Stock Company (JSC).
The joint stock companies, in turn, may be public and non-public.
4.1.2.1.2. Public and Non-public Legal Entities
An LLC is a non-publicnon-public legal entity. The JSCs may be both public and non-public. The JSC is deemed public when its shares (or securities convertible into shares) have been publicly placed by an open subscription, or have been publicly converted on the conditions established by the laws on the securities. If the charter and the firm name of the legal entity indicate that the company is public, then the rules on public companies are applied (Clause 1 of Article 66.3 of the CC of the RF).
Many of the issues concerning the activities of the public and non-publicnon-public JSCs are regulated in different ways. This must be considered while conducting business.[34 - For example, a public JSC, is obliged to disclose the annual report, annual financial statements, announcement of the shareholders’ general meeting, and other information. A non-public JSC is obliged to do so only if the number of its participant exceeds 50. Furthermore, shareholders of a non-public JSC may have the privilege of stock acquisition, as well as have the ability (if it is provided by a charter) to prohibit the alienation of the stock to a third party. Public JSC shareholders may not have such rights. There are also other differences between public and non-public JSCs.]
4.1.2.1.3. The Legal Entities’ Charter Capital
The charter capital cannot be less than the established minimal threshold (the minimum amount of the charter capital), and this is different for the various organizational-legal forms of legal entities. It is established by the federal laws on the profit of legal entities' separate organizational-legal forms (FL on Limited Liability Companies, FL on Joint Stock Companies). Moreover, the federal laws regulating the implementation of separate types of activities (for example, banking, insurance and others) may establish increased requirements as to the minimum amount of the company’s charter capital.
The minimum amount for the charter capital of LLCs and non-public JSCs is 10000 rubles; and 100000 rubles for public JSCs (the second paragraph of the Clause 1 of Article 14 of the FL on Limited Liability Companies, Article 26 of FL on Joint Stock Companies).
If at the end of the second and each subsequent fiscal year, the legal entity’s net assets value is less than its charter capital, the company is obliged to reduce its charter capital. If the net assets value is less than the minimum amount of the charter capital, it is subject to liquidation.
At a vote on various issues, the number of votes of the company's participants depends on the size of their shares in the charter capital (for LLC) or the stock number (for JSC). There are few exceptions to this rule.
4.1.2.1.4. Corporate Agreement
Some or all of the company's members may sign a corporate agreement/shareholders agreement,[35 - A corporate contract concluded by LLC participants is called "a contract on the implementation of the shareholders’ rights". A similar contract signed by JSC shareholders is called "a joint stock agreement".] which will regulate the implementation of the participants’ various corporate rights (in addition to the law provisions). Such an agreement may contain, in particular, provisions obliging the members to:
i) vote in a certain way at the general meeting of the company's participants,
ii) concertedly implement other actions on the company's management,
iii) acquire or alienate shares in the charter capital (stocks) at a certain price or upon the occurrence of certain circumstances,
iv) abstain from the alienation of shares (stocks) before the occurrence of certain circumstances.
A corporate agreement is executed in writing by drawing up a single document. The terms of the corporate agreement concluded by the members of non-public company are deemed confidential and are not subject to discloser, unless otherwise provided for by the law. The shareholders’ agreement concluded by the shareholders of public JSC shall be publicly disnon-public to the extent necessary, in accordance with the Federal law on JSC. Currently, the norms establishing the terms of the relevant information disclosure are absent in the Federal Law on JSC. A company must be notified about the execution of a corporate agreement.
4.1.2.1.5. Affiliates
The company is considered as an affiliate if another company (or economic partnership) has an opportunity to govern a company’s decisions. Such an opportunity may arise, for example, from the participation of the main company in the affiliate’s charter capital, or from a contract between the main and affiliate companies.
The main company of the partnership, in some cases, bears a joint liability for the affiliate’s transactions. Such liability arises from the transactions signed by the affiliate in pursuance of the instructions, or with the consent of the main company or economic partnership (there are exceptions from this rule). Furthermore, in case of the affiliate's insolvency (bankruptcy) due to the fault of the main economic partnership or the company, the main company bears the subsidiary liability for the affiliate’s debts (Article 67.3 of the CC of the RF).
4.1.2.2. LLC
4.1.2.2.1. The Legal Nature of LLC
A LLC is one of the most common organizational legal forms of legal entities in Russia. One of the main reasons for this is that the Federal Law on Limited Liability Companies regulates many aspects on facultative basis, allowing the legal entity’s bodies to resolve various issues at its discretion. This work is done internally at the company.
Charter capital[36 - For more information about the minimum amount of an LLC Charter Capital, see chapter 4.1.2.1.C.] is divided into participatory interests belonging to the LLC participants. The company is not liable for its participants' obligations. As a general rule, the participants are not liable for the company's obligations either.
Generally, a LLC is not obliged to publish its reports.
4.1.2.2.2. The Features of the Establishment of A Limited Liability Company
In accordance with Clause 1 of Article 89 of the CC of the RF, the LLC founders are obliged to sign an LLC foundation agreement in writing, which shall define some aspects of the company’s foundation.
This contract is not a constituent document of the LLC.
