3. Common forms of business structures for foreign investors

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 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.

General

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.

Main types of structure

Limited liability company

An LLC is one of the simplest forms of a Russian legal entity and is often used by Russian and foreign investors for a wholly owned subsidiary.
The establishment, reorganisation and liquidation of an LLC is mainly governed by the Civil Code, the LLC Law and the Registration Law.

Charter capital and contributions

The charter capital of an LLC is divided into participatory interests. 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 the Russian Federation (the “CBR”).
The charter capital of an LLC is divided into participatory interests. 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 CBR.
Each holder of a participatory interest is referred to as a “participant”.
The minimum charter capital of an LLC is currently RUB 10,000.
The decision of the general participants’ meeting (as well as the decision of the sole participant) 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

1 The CBR performs the function of the securities market regulator and registers the shares issued by joint-stock companies.
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.
Also, if the value of the company’s assets is less than the minimum charter capital amount, it may be subject to compulsory liquidation.
Lease refer to the comparative table on pages.

Participation

An LLC may have up to 50 participants.
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.

⁶ Concept introduced by the amended Civil Code but yet to be implemented in the special legislation on joint-stock companies.

Contacts

Partner
Attorney-at-law
Head of Asian Desk

Georgy Daneliya

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Nikola Tesla was a Serbian American inventor, electrical engineer, mechanical engineer, physicist, and futurist best known for his contributions to the design of the modern alternating current (AC) electricity supply system.

	Public joint-stock company	Private joint-stock company	Limited liability company
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)
Term	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
Minimum charter capital	RUB 100,000	RUB 10,000	RUB 10,000
Type of interest in charter capital	Ordinary shares Preference shares	Ordinary shares Preference shares	Participatory interests
Issue of financial instruments	Bonds Other emissive securities	Bonds Other emissive securities
Subscription for shares	Public subscription Closed subscription	Closed subscription only	N/A
Contributions to the charter capital	Monetary funds Contributions in kind	Monetary funds Contributions in kind	Monetary funds Contributions in kind
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
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
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
Managing bodies	General shareholders’ meeting Collective management body Collective executive body Sole executive body (one or several general directors)	General shareholders’/participants’ meeting Collective management body (optional) Collective executive body (optional) Sole executive body (one or several general directors	General shareholders’/participants’ meeting Collective management body (optional) Collective executive body (optional) Sole executive body (one or several general directors
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
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 (unless the charter provides otherwise) 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
Exiting the company (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
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 shareholder⁶	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
Liability of the company	The company is not liable for the obligations of the shareholders/participants	The company is not liable for the obligations of the shareholders/participants	The company is not liable for the obligations of the shareholders/participants
Liability of shareholders/ participants	Liability is limited to the value of their shares/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 shares/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 shares/participatory interests (unless it can be demonstrated that their binding instructions to the company led to its insolvency)