1. Introduction
    1. Political and administrative structure
    2. Legal environment
  2. Common forms of business structures for foreign investors
    1. Main types of structure
    2. Registration, liquidation and reorganisation of business structures
    3. Shareholders’ and participants’ agreements
    4. Strategic industries
  3. Anti-monopoly issues
    1. General legal and regulatory framework
    2. Scope of application of the Competition Law
    3. Anti-competitive practices and restriction of competition
    4. Liability
  4. Tax system
    1. General approach
    2. Corporate taxation
    3. Incentives
    4. Special tax regimes
    5. Taxation of individuals
    6. Double taxation treaties
  5. Customs regulations
    1. General approach
    2. Trade between EEU and non-EEU countries
    3. Mutual trade between the EEU members
  6. Currency control
    1. Foreign currency transactions
    2. Consequences of breach/Penalties
  7. Lending in Russia
    1. Lending documents and governing law
    2. Jurisdiction
    3. International finance transactions and repatriation requirements
    4. Security interests
    5. Recognition of security trusts
    6. Syndicated loans
    7. Enforcement
    8. Suretyships and guarantees
    9. Bankruptcy considerations
    10. Other lending related issues
  8. Employment and migration
    1. Formalising the employment relationship
    2. Managing employment relationships
    3. Terminating an employment agreement
    4. Specifics of employing foreign nationals
  9. Personal data protection
    1. General approach
    2. Scope of the Data Protection Law
    3. Liability
    4. Right to be forgotten
  10. Intellectual property
    1. General approach
    2. Contractual aspects of intellectual property rights
    3. Rights over the results of intellectual activity
    4. Company names, trade names, trademarks and appellations of origin
    5. Intellectual property rights infringements
    6. IP Court
  11. Advertising issues
    1. General approach
    2. Scope of application of the Advertising Law
    3. Violations of the Advertising Law
    4. Liability
  12. Anti-corruption and compliance
    1. General approach
    2. Legal framework
    3. Compliance requirements for companies
    4. Concept of corruption in Russian law
    5. Possible targets of bribery
    6. Liability and penalties for corruption
    7. Example of sector-specific anti-corruption measures
  13. Real estate and construction
    1. Rights to real estate
    2. Real estate transactions
    3. Resolution of real estate disputes
    4. Planning and construction issues
  14. Corporate bankruptcy
    1. Insolvency criteria
    2. Stages of bankruptcy proceedings
  15. Import substitution and production localisation in Russia
    1. Measures affecting goods importation and current import substitution legislation
    2. Localisation incentives
    3. Sector-specific impact of import restrictions and localisation requirements
  16. Banking sector
    1. Legislative and regulatory framework
    2. Licensing and operations
    3. Deposit insurance
    4. The anti-money laundering law
    5. Bank secrecy
    6. FATCA and CRS
  17. Environment, energy efficiency and renewables
    1. Environment
    2. Energy efficiency
    3. Renewables
  18. Infrastructure and public private partnerships
    1. General approach
    2. Key PPP legislation
    3. Russian PPP environment
    4. Financing
    5. Legal issues
    6. Prospects for infrastructure projects
  19. Oil & gas
    1. Legislative framework
    2. Ownership and licensing
    3. Restrictions on foreign investors
    4. Licences
    5. PSAs

Common forms of business structures for foreign investors

General approach

Russian legislation provides for several types of business structure, of which the most commonly used are limited liability companies, joint-stock companies, representative offices and branches. A basic description of each of these is set out in Part I of the Civil Code of the Russian Federation (the “Civil Code”). Some other specialised structures also exist but are not commonly used by foreign investors. An individual is also entitled to conduct commercial activities in Russia, provided that he/she has the legal status of an individual entrepreneur. Foreign nationals can only register as individual entrepreneurs when they hold a temporary or permanent residence permit. The legal framework for individual entrepreneurs is also set out in the Civil Code.

Key contacts

Contact
Zenin Vladimir
Vladimir Zenin
Partner
Head of M&A

Main types of structure

Russian legal entities

Other business structures

Russian legal entities

All Russian legal entities are classified into unitary entities (no “shareholding” provided to the founder(s)) and corporations. Corporations, in turn, can be public or private. Private corporations will provide more flexibility to their members in corporate governance issues and will be subject to more limited disclosure obligations. Conversely, public corporations will have to disclose more information about their activities and the management structure of public corporations will be regulated by mandatory rules to a greater extent. 

Joint-stock companies are classified as corporations that can be either public or private and limited liability companies are classified as private corporations.

Foreign investors in Russia mostly use the limited liability company and the private joint-stock company forms for their activity in Russia. 

Other special forms of legal entity exist, such as the economic partnership which is designed primarily for the holding in common of IP rights (but of little application beyond that).

Limited liability company

A limited liability company (“obshchestvo s ogranichennoy otvetstvennostyu” – an “LLC”) 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.

Russian legislation prevents an LLC being wholly owned by another company (“khozyaystvennoye obshchestvo”), where that holding company is itself wholly owned by (i) another single legal entity; or (ii) a single individual. 

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”) and Federal Law No. 129-FZ "On State Registration of Legal Entities and Individual Entrepreneurs" dated 8 August 2001 (the "Registration Law").

 

Charter capital and contributions

The charter capital of an LLC is divided into participatory interests (“doli”). Unlike the shares issued by a joint-stock company, these participatory interests are not classified as securities and therefore do not need to be registered with the Central Bank of Russia (the “CBR”¹).

Each holder of a participatory interest is referred to as a “participant”.

The minimum charter capital of an LLC is currently RUB 10,000 (EUR 143²). The amount of the monetary fund for the charter capital must not be less than amount of the minimum charter capital.

The decision of the general meeting of participants to increase the charter capital and the list of members that were present at the relevant general meeting have to be confirmed by a notary.

Contributions to the charter capital of an LLC may be made in cash or in kind (e.g. securities, property or other tangible or intangible rights or assets having a monetary value). Any contribution in kind must be valued by an independent appraiser.

A participant may not be released from the obligation to pay its agreed contributions to the charter capital. In case of a charter capital increase, contributions to the charter capital can be made by set off against any existing monetary debt that the company owes to the participant, provided that all the participants agree.

Exemptions from import duties and import VAT may be available for certain types of equipment contributed to the charter capital of a company by a foreign participant.

Net asset requirements and creditor protection

An LLC must ensure that the value of its net assets does not fall below the amount of its charter capital. Failure to comply with this requirement may result in the company being required to decrease its charter capital accordingly or to increase the value of its net assets by one of the available ways.

Also, if the value of the company’s assets is less than the minimum charter capital amount, it may be subject to compulsory liquidation.

Participation

If the number of participants in the company exceeds 50, the company is obliged either to reduce the number of participants or to re-register as a joint-stock company within one year. Failure to do so may lead to compulsory liquidation.

All LLCs must maintain a register of participants. This register sets out the names of the participants and the number of participatory interests that each participant has in the company.

As a general principle, the participants’ liability for the company’s debts is limited to the payment (in full) of the amount of their participatory interests. In a limited number of cases, the corporate veil can be pierced, resulting in participants having unlimited liability for the obligations of the company. This can happen if, for example, a participant gives binding instructions to the company that lead to the insolvency of the company.

Beneficial owners 

All LLCs must know who their ultimate beneficial owners are and take steps to collect certain information on them from the participants in the LLC. Such information must be disclosed to Russian state authorities upon request.

Management structure

The managing bodies of an LLC are:

  • the general participants’ meeting;
  • the collective management body – board of directors (optional);
  • the collective executive body – management board (optional); and
  • the sole executive body (one or several executives) – general director.

Major decisions, such as amending the company’s charter, changing the charter capital, distributing profits and approving the annual reports and balance sheets of the company must be taken by the general participants’ meeting.

The annual general participants’ meeting must be held not earlier than two months, and not later than four months, after the end of the company’s financial year (which always corresponds to the calendar year). Extraordinary general participants’ meetings may be held at any time. General participants’ meetings must be convened according to the procedure set out in the company’s charter and the LLC Law unless all participants attend the meeting.

Unless otherwise expressly provided for by the company’s charter, a participant’s number of votes at the general participants’ meeting will normally correspond to the proportion of the company’s charter capital that such participant holds.

Generally, decisions are adopted by a simple majority of votes of all participants except for those matters in respect of which the LLC Law requires a qualified majority (e.g. liquidation of the company). In addition, a qualified majority can be set out by the company’s charter for other matters at the discretion of the participants.

Most decisions (except approval of the company’s annual reports and balance sheets) may be adopted without holding a participants’ meeting through absentee voting.

The general participants’ meeting has exclusive competence in respect of the list of matters specified by the Civil Code and LLC Law. This list can be extended in the company’s charter at the discretion of the participants.

Resolutions of the general participants’ meeting must be certified by a notary unless otherwise provided for by the charter or a notarised unanimous resolution of the general participants’ meeting.

board of directors is an optional supervisory body. Its authority typically includes appointing/dismissing the general director or approving certain types of transactions or transactions the value of which exceeds certain thresholds.

The LLC can also have a management board. By law, the general director chairs the management board. Unlike the general director, however, members of the management board must obtain a power of attorney from the general director in order to enter into transactions on the company’s behalf.

Powers of the board of directors and the management board are to be defined by the charter at the discretion of participants.

The general director (sole executive body) manages the day-to-day running of the company and deals with all other issues not falling within the authority of the other management bodies. The general director acts on behalf of the company, represents its interests, enters into transactions on its behalf, issues powers of attorney and hires and dismisses employees. The general director represents the company without a power of attorney. The general director’s powers may be limited by the company’s charter and his/her employment contract.

The powers of the sole executive body can be provided to several executives of the company for individual or joint representation, which must be reflected in the Unified State Register of Legal Entities. However, this Register has not yet been amended to allow reflecting the particular authorities of each of the executives. As a result, the general rule that all executives indicated in the Register have equal and unlimited authorities applies and, thus, the four-eyes principle cannot currently be implemented vis-à-vis third parties.

A foreign national may be appointed as the general director of an LLC subject to compliance with work permit regulations (please see the Employment and migration chapter).

The general participants’ meeting may transfer the general director’s authority to a management company (in whole only). In such case the management company will act on the basis of the management agreement entered into with the company.

Audit

The charter may provide for an internal auditor (either an individual or an internal audit commission established under the company’s own charter). In some cases a company must have an internal auditor – as with companies having more than 15 participants – without which the general participants’ meeting will not be able to approve the company’s annual reports and balance sheets (as they must first be approved by the internal auditor).

An external auditor may also be appointed by the general participants’ meeting to audit the company's financial and business activity. If certain turnover or asset value thresholds are exceeded, or if the company conducts certain regulated activities, an external auditor must be appointed.

Transfer of participatory interests

Participatory interests are freely transferable between participants. However, the charter may specify that a transfer of participatory interests requires the consent of the other participants and/or the company.

A participant may transfer its participatory interest to third parties, subject to a statutory pre-emption right in favour of the other participants and, if so provided for by the charter, in favour of the company itself.

The procedure for selling participatory interests and for determining their offer price is set out in the LLC Law, although the company’s charter and/or participants’ agreement may provide a different procedure.

A participatory interest transfer agreement must be notarised. The participatory interest is deemed transferred after the information on the transfer is registered in the Unified State Register of Legal Entities. This creates difficulties in the context of settlements between the parties to Russian agreements for the sale and purchase of participatory interests since the registration of the transfer may take up to seven business days and is outside of the parties’ control.

The charter may prohibit the transfer of participatory interests to third parties or make such transfer subject to the consent of other participants or the company. If such consent is not given, the company itself is obliged, by law, to purchase the relevant participatory interests.

Right to withdraw

Participants in an LLC are entitled to withdraw from the company without the consent of other participants if: (i) this is permitted by the company’s charter; or (ii) the transfer of participatory interest to a third party or another participant is prohibited and/or blocked by other participants; or (iii) the general meeting of participants approved a major transaction or a charter capital increase (in this event, the right to withdraw is granted to any participant who voted against such decision or did not attend the meeting). The application of a participant for withdrawal from the company has to be notarised.

If a participant withdraws from the company, it has to serve a withdrawal notice to the company. Such withdrawal notice must be certified by a notary. After receipt of the notarised withdrawal notice, the general director has to apply to the Unified State Register of Legal Entities to register the relevant transfer of the participatory interest to the company. The company is then obliged to pay the exiting participant the “actual value” of its participatory interest in cash. The company may, however, pay the exiting participant in kind provided that the participant agrees to this.

The “actual value” of the exiting participant’s participatory interest is calculated in accordance with accounting data as provided in the LLC Law. The statutory payment procedure and timing may be varied in the company’s charter.

Expulsion of a participant

Company participants holding more than 10% in the company’s charter capital (in aggregate) are entitled to apply to the court for the exclusion from the company of a participant that commits a gross violation of its duties or whose actions or failure to act renders the company’s operation impossible or significantly impairs it.

Where a creditor of a participant enforces against the latter’s participatory interest, the LLC and/or the other participants are entitled to pay the actual value of such participatory interest to the creditor. If they do so, the participant withdraws from the LLC and its participatory interest is transferred to the other participants and/or to the LLC (depending on which of them satisfied the claim of the creditor).

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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 CBR.

A joint-stock company (“aktsionernoye obshchestvo” – a “JSC”) can either be public or private (non-public). Public JSCs are capable of offering their shares by public offering, which results in their activity being more stringently regulated by law. They must contain the word “public” in their company name.

Private JSCs, on the other hand, 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; and
  • 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.

As with LLCs, Russian legislation prevents a JSC being wholly owned by another company (“khozyaystvennoye obshchestvo”), where the holding company is itself wholly owned by (i) another single legal entity or (ii) a single individual.

Charter capital and contributions

The charter capital of a JSC is divided into shares (which may be split into ordinary shares and preference shares). These shares are deemed to be securities for the purposes of Russian securities legislation and must therefore be registered with the CBR.

The minimum charter capital is currently RUB 100,000 (EUR 1,430) for a public JSC, and RUB 10,000 (EUR 143) for a private JSC.

As with LLCs, contributions to the charter capital may be paid in cash or in kind. Other types of securities, such as corporate bonds, must be paid in cash only. Contributions in kind must be valued by an independent appraiser. It is possible to pay for new shares issued in a closed subscription by way of a debt-for-equity swap.

The charter capital may be increased by issuing new shares (within the number of authorised shares set out in the company’s charter) or increasing the nominal value of the shares already in issue. Each capital increase must be filed and registered with the CBR, which is a lengthy process.

As a general principle, the liability of the shareholders for the company’s debts is limited to the payment (in full) of their shares. In a limited number of cases, however, the corporate veil can be pierced resulting in the shareholders having unlimited liability for the obligations of the company. This can happen if, for example, a shareholder gives binding instructions to the company that lead to the insolvency of the company.

Net asset requirements and creditor protection

A JSC must ensure that the value of its net assets does not fall below the amount of its charter capital. Failure to comply with this requirement may result in the company being required to decrease its charter capital accordingly or to increase the value of its net assets. 

Also, if the value of the company’s assets is less than the minimum charter capital amount, it may be compulsorily liquidated.

In addition to other filing requirements, JSCs must submit information on their net asset value to the Unified Federal Register of Legally Significant Data about the Facts of the Activities of Legal Entities. This requirement aims to increase the transparency of the financial state of the company and protect its creditors. 

At least 5% of the charter capital of any JSC must be allocated to a reserve fund. This fund is created specifically to cover losses and to redeem bonds and shares of the company.

Beneficial owners 

All JSCs must know who their beneficial owners are and take steps to collect the relevant information from their shareholders. Such information is to be disclosed to the state authorities upon request.

Management structure

The managing bodies of a JSC are: 

  • the general shareholders’ meeting; 
  • the collective management body (optional for private JSCs) – board of directors, supervisory board;
  • the collective executive body (optional for private JSCs) – management board; and 
  • the sole executive body (one or several executives) – general director.

The annual general shareholders’ meeting must be held not earlier than two months, and not later than six months, after the end of the company’s financial year (which always corresponds to the calendar year). Extraordinary general shareholders’ meetings may be called by the general director, the board of directors, the external auditor, the internal auditor of the company or by shareholders owning at least 10% of the voting shares in the company.

At general shareholders’ meetings most decisions may be passed by a simple majority of the shareholders attending the meeting (e.g. a decision to appoint executives of the company). However, a limited number of more significant decisions require not less than 75% of the votes of the shareholders attending the meeting (e.g. decisions on the liquidation or reorganisation of the company, amendments to the charter or approval of a new version of the charter). Each share entitles the holder to one vote.

Subject to certain exceptions, shareholders may adopt decisions without holding a meeting through absentee voting. In the case of public JSCs, decisions must be certified by the company’s registrar. A private JSC may use either the registrar or a notary for certifying its decisions. 

The collective management body (e.g. board of directors, supervisory board) is responsible for the general management of the company but may not interfere with the exclusive competence of the general shareholders’ meeting. It consists of at least five members and is mandatory for a public JSC.

Members of the collective management body are elected by an annual/extraordinary general shareholders’ meeting and serve until the next annual general shareholders’ meeting. There is no limit on the number of times a member of the collective management body may be re-elected.

The collective executive body (e.g. management board) is supervised by the collective management body of the company. 

The company may have one or several general directors (sole executive body). The sole executive body is responsible for the day-to-day running of the company and can represent the company without a power of attorney. In the case of appointment of several general directors, they may be authorised to act individually or jointly and this must be disclosed in the Unified State Register of Legal Entities. However, this Register has not yet been amended to allow reflecting the authorities of each of the executives. As a result, the general rule that all executives indicated in the Register have equal and unlimited authorities applies and, thus, the four-eyes principle cannot currently be implemented vis-à-vis third parties.

Legal entities may be appointed as the sole executive body.

A foreign national may be appointed as the general director of a JSC subject to compliance with work permit regulations (please see the Employment and migration chapter).

Audit

JSCs are required to appoint an external auditor to audit the annual accounts.

From 1 July 2020, an audit committee (“komitet po auditu”) will have to be set up in public JSCs, and the board of directors will have to appoint an executive responsible for organising and conducting the internal audit (including evaluating risk management and the efficiency of internal control systems). 

Unless specifically excluded in their charters, JSCs should also have an internal audit committee (“revizionnaya komissiya”). It audits the company’s financial and business activity. Before the annual general shareholders’ meeting, this committee prepares an annual report and balance sheet. The report is then communicated to all the shareholders that are entitled to attend the meeting.

Furthermore, the internal audit committee may audit the company at any time:

  • at its own initiative;
  • upon a decision of the general shareholders’ meeting; or
  • upon demand of a shareholder or a group of shareholders holding at least 10% of the voting rights in the company.

Issue and transfer of shares

The shares of a JSC, whether public or private, are treated as securities and as such are subject to the registration requirements of the Securities Market Law. When issuing new shares, all JSCs must carry out the requisite filings with the CBR. The documents that must be filed include among others the decision to issue shares and the report on the results of the share issue as well as, in certain cases, a prospectus for the share issue.

A share transfer takes effect when it is recorded in the register of shareholders that all JSCs are required to maintain. The register of shareholders must be kept by an independent company duly licensed by the CBR with no exceptions.

public JSC may make both closed and public offerings of its shares. There are no statutory pre-emption rights or restrictions on the transferability of shares in the company whether to other shareholders or third parties. When the charter capital is increased by issuing additional shares, however, existing shareholders do have the benefit of statutory pre-emption rights.

Acquisition of more than 30% of the shares in a public JSC by an existing shareholder or a third party triggers a mandatory buyout offer which needs to be supported by a bank guarantee and served to the remaining shareholders.

Shares of a private JSC are freely transferable between shareholders, although it is possible to introduce contractual restrictions by means of a shareholders’ agreement. Share sales to third parties are subject to statutory pre-emption rights of the other shareholders in the company (and the company itself if so provided in the charter). Starting from 1 January 2020, JSCs will also have an opportunity to privately offer their shares via crowdfunding platforms.

Redemption of shares

In certain cases where a shareholder disagrees with decisions taken at a general shareholders’ meeting, it may be able to require the company to purchase its shares. This applies when:

  • a decision has been taken to reorganise the company;
  • a decision has been taken to adopt charter amendments or to adopt a revised charter limiting the rights of the shareholder in question; or
  • a major transaction has been approved.

The shares will be redeemed at a price no less than the market value of the shares as determined by an independent appraiser in accordance with the methods prescribed in the JSC Law.

Expelling a shareholder

A shareholder of a private JSC may expel another shareholder through court action for causing harm to the company or impeding its activity.

 

In case of a public JSC a shareholder that has acquired more than 95% of the voting shares in accordance with a special procedure may “squeeze out” the minority shareholders.

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Economic partnership

The economic partnership (“khozyaystvennoye partniorstvo”) 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.

That said, 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.

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Summary of legal forms

For ease of comparison between the legal entities described above, please refer to the comparative table below:

 

Public joint-stock company

Private joint-stock company

Limited Liability company

Economic partnership

Activities

Any type of activity (subject to licensing requirements)

Any type of activity (subject to licensing requirements)

Any type of activity (subject to licensing requirements)

Any type of activity (subject to licensing requirements) except for incorporating other legal entities, issuing bonds and other emissive securities, advertising

Term

Unlimited term, unless otherwise provided in charter

Unlimited term, unless otherwise provided in charter

Unlimited term, unless otherwise provided in charter

Unlimited term, unless otherwise provided in charter

Number of shareholders/ participants

Unlimited

Unlimited

1 to 50

2 to 50

Minimum charter capital

RUB 100,000
(EUR 1,433)

RUB 10,000
(EUR 143)

RUB 10,000 
(EUR 133)

None

Type of interest in charter capital

• Ordinary shares
• Preference shares

• Ordinary shares
• Preference shares

Participatory interests

Participatory interests

Issue of financial instruments

• Bonds
• Other emissive securities

• Bonds
• Other emissive securities

• Bonds
• Other emissive securities

Prohibited

Subscription for shares

• Public subscription
• Closed subscription

Closed subscription only

N/A

N/A

Contributions to the charter capital

• Monetary funds
• Contributions in kind

• Monetary funds
• Contributions in kind

• Monetary funds
• Contributions in kind

• Monetary funds
• Contributions in kind, except securities other than certain bonds

Payment of the charter capital

Not less than 50% must be paid within three months, the rest within 12 months of the state registration of the company

Not less than 50% must be paid within three months, the rest within 12 months of the state registration of the company

The whole charter capital within four months of the state registration of the company

A specific procedure can be stipulated in the management agreement

Capital increase

Only after the charter capital has been fully paid up

Only after the charter capital has been fully paid up

Only after the charter capital has been fully paid up

A specific procedure can be stipulated in the management agreement

Capital decrease

• After notification of creditors and repayment of debts
• Mandatory decrease in certain cases

• After notification of creditors and repayment of debts
• Mandatory decrease in certain cases

• After notification of creditors and repayment of debts
• Mandatory decrease in certain cases

A specific procedure can be stipulated in the management agreement

Managing bodies

• General shareholders’ meeting
• Collective management body
• Collective executive body
• Sole executive body (one or several general directors)

• General shareholders’ meeting
• Collective management body (optional)
• Collective executive body (optional)
• Sole executive body (one or several general directors)

• General participants’ meeting
• Collective management body (optional)
• Collective executive body (optional)
• Sole executive body (one or several general directors)

• Director
• The management structure is subject to the management agreement, i.e. any other managing bodies (board of directors, management board) are optional and subject to the management agreement

Transfer of shares/participatory interests between shareholders/ participants

No restrictions, however acquisition of more than 30% triggers the mandatory offer obligation

No restrictions, unless otherwise provided for in a shareholders’ agreement

Without restrictions, unless the charter provides for participants’/company’s consent or unless provided for in a participants’ agreement

Without restrictions, unless otherwise provided for by the management agreement

Transfer of shares/ participatory interests to third parties

No restrictions, however acquisition of more than 30% triggers the mandatory offer obligation

• Can be subject to shareholders’ pre-emption right under the charter
• Can be subject to company’s pre-emption right under the charter

• Subject to participants’ pre-emption right
• Can be subject to company’s pre-emption right under the charter
• Can be restricted by the charter
• Can be subject to participants’/
company’s consent
• Subject to notarisation unless exempted by law

Subject to all participants’ consent and participants’ pre-emption right

Exiting the company/partnership (redemption/withdrawal)

Shareholders may require the company to buy out their shares in limited cases: when they do not agree with certain decisions, including the reorganisation of the company, charter amendments which limit their rights and the conclusion of major transactions

Shareholders may require the company to buy out their shares in limited cases: when they do not agree with certain decisions, including the reorganisation of the company, charter amendments which limit their rights and the conclusion of major transactions

A participant may withdraw from the company if
(i) permitted by the company’s charter or
(ii) the transfer of participatory interest to a third party or another participant is prohibited and/or blocked by other participants

A specific procedure can be stipulated in the management agreement

Expulsion of a shareholder/participant

Squeeze-out by a shareholder who has acquired more than 95% of the voting shares

Shareholders may be expelled from the company through court action initiated by another shareholder3

Participants may apply to the court for the exclusion from the company of a participant that commits a gross violation of its duties or whose actions or omissions jeopardise the company’s operations or significantly impair them

• Participants may bring a court action to expel any participant which grossly violates its obligations, or prevents or materially impedes the partnership’s activities, or
• Without bringing a court action if a participant fails to pay its interest

Liability of the company/ partnership

The company is not liable for the obligations of the shareholders

The company is not liable for the obligations of the shareholders

The company is not liable for the obligations of the participants

The partnership is not liable for the obligations of the participants

Liability of shareholders/ participants

Liability is limited to the value of their shares (unless it can be demonstrated that their binding instructions to the company led to its insolvency)

Liability is limited to the value of their shares (unless it can be demonstrated that their binding instructions to the company led to its insolvency)

Liability is limited to the value of their participatory interests (unless it can be demonstrated that their binding instructions to the company led to its insolvency)

Liability is limited to the value of their participatory interests (unless it can be demonstrated that their binding instructions to the partnership led to its insolvency)

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Other business structures

Although foreign individuals and legal entities can set up wholly owned subsidiary companies and may participate in the various forms of partnership prescribed under Russian law, using a representative office or a branch remains an effective way for a foreign legal entity to enter the Russian market. An investment partnership is also a relatively new form of unincorporated legal structure which may be relevant to investment funds.

Representative office

Status

A representative office (“predstavitelstvo”) is not a separate legal entity but, rather, is an office set up to represent the interests of the parent company. This does not prevent it, in practice, from conducting business in Russia (and many representative offices do so) and being treated by the tax authorities as a separate profit centre from the parent company. However, as a matter of civil law, a representative office’s lack of separate legal identity limits the types of business activities it may undertake. For example, a representative office may not formally import goods for purposes other than its own needs, nor may it register title to immovable property in its own name. A representative office may also experience difficulties in obtaining licences and permits to conduct certain types of business.

A representative office may, however, carry out representative functions on behalf of the parent company, including arranging marketing and advertising in Russia. It may also assist in other commercial and legal transactions between the parent and Russian organisations, including the rental of property.

Foreign employees of a representative office should obtain personal accreditation. This involves certain practical benefits for the accredited foreign employee, such as the right to import and export personal effects free of customs duty and VAT, and it assists with obtaining multi-entry visas. Such employees must hold work permits in order to work in Russia (please see the Employment and migration chapter).

A representative office may hold a number of different types of bank account, including foreign currency and rouble accounts. These accounts enable the representative office to make payments in Russia to both residents and non-residents subject to certain currency control restrictions established by CBR regulations and other applicable legislation (please see the Currency control chapter).

As a representative office is merely an extension of a foreign parent company, the latter remains responsible for the liabilities of the representative office.

Management

A representative office acts on the basis of regulations approved by the parent company and is managed by the head of the office who is authorised to conduct the business of the office and to represent the foreign company under a power of attorney. A representative office should also have a chief accountant. 

There is no requirement for either the head of the office or the chief accountant to be Russian nationals although an accountant who understands the intricacies of Russian tax and accounting law is a practical necessity.

Branch

Status

A branch (“filial”) is also an office set up to represent the interests of the parent company. In addition to carrying out the functions of a representative office a branch may formally carry out profit-making activities.

As a branch is merely an extension of a foreign parent company, the foreign company remains responsible for the liabilities of the branch.

Foreign employees of a branch should be personally accredited in the same manner as those of a representative office and, in addition, they must hold work permits in order to work in Russia (please see the Employment and migration chapter).

Management

Management issues are the same as those concerning representative offices (please see the relevant paragraph above).

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Table showing main differences between a representative office and a branch

Business structure

Representative office

Branch

Formation

Two-step accreditation procedure:
(i) review of the set of documents and confirmation of the number of foreign employees by the Chamber of Commerce and Industry of the Russian Federation;
(ii) followed by registration by the Federal Tax Service

Two-step accreditation procedure:
(i) review of the set of documents and confirmation of the number of foreign employees by the Chamber of Commerce and Industry of the Russian Federation;
(ii) followed by registration by the Federal Tax Service

Capacity

Technically restricted to representation, but functions in practice are often wider. Unable to hold title to property, or to import or export goods. May be unable to obtain certain permits and licences

Wider capacity. Usually able to obtain requisite licences and permits

Taxation

Capable of constituting a permanent establishment for Russian tax purposes and is subject to Russian taxation accordingly

Will constitute a permanent establishment for Russian tax purposes and is subject to Russian taxation accordingly

Foreign staff

Work permits for foreign employees are required

Work permits for foreign employees are required

Accreditation or renewal term

No limitation

No limitation

Other

The Civil Code provides for a range of other business structures, including simple partnerships (which are not legal entities) as well as full and limited partnerships – which are rarely encountered in practice –, and investment partnerships.

There are also non-commercial organisational forms that may be used for charities, trade associations and other not-for-profit organisations.

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[1] The CBR performs the function of the securities market regulator and registers the shares issued by joint-stock companies. Back↑

[2] At the notional exchange rate of RUB 70 = EUR 1, as used for convenience throughout this guide. Back↑

[3] Concept introduced by the amended Civil Code but yet to be implemented in the special legislation on joint-stock companies. Back ↑

 

 

 

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Vladimir Zenin
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