• Commercial and Non-Profit Organizations
• Partnerships
• Limited Liability Companies
• Additional Liability Companies
• Joint Stock Companies
• Other forms of incorporation
• Incorporation of Legal Entities

The main classification of legal entities in the Russian Federation is based on whether they are commercial or non-profit.

If an entity is dedicated to making profit in the course of its main business activity then it is recognized as a commercial organization. Commercial organizations may be established in the form of business partnerships or companies, production cooperatives, state or municipal unitary enterprises.

The entities which are not dedicated to making profit in the course of their primary activities are deemed to be non-profit organizations. Non-profit organizations may be established in the form of consumer cooperatives, social or religious organizations (associations), institutions, charitable or other foundations, or in other forms as provided by laws. Such organizations are entitled to carry on business activities exclusively to the extent that such activities comply with the purpose of their incorporation and provided that their business is carried on in accordance with these purposes.

Types of Commercial Organizations. Choosing a Form of Incorporation

In general (unlimited) partnerships the participants (also referred to as "general partners") carry on business on behalf of their partnership and are held jointly liable for the obligations of the latter taking into account that their property may be used to cover their liabilities within the framework of their joint liability.

Limited Partnership (also referred to as "partnership in commendam") is a partnership where, along with the general partners, one or a few investing participants (limited partners) are involved and they bear their risks of loss connected with the business of a partnership to the extent of the amount of money invested whilst they do not participate in business activities carried on by a partnership.

Currently, such form of incorporation as a partnership is not that common since the general partners are bearing high economic risks whereas the limited liability companies are more convenient in this regard and, at the same time, it has to be noted that managing a partnership is more complicated than working individually as a private entrepreneur.

A limited liability company (hereinafter referred to as "LLC") is a company established by one or a few persons, the charter capital of which is divided into participatory interests (units); the participants of a company are not liable for a company's obligations and are bearing their risks of loss connected with a company's business in the amount equal to the cost of their participatory interests (units) in the charter capital. An LLC  is not entitled to issue shares.

The number of participants in a company cannot exceed fifty persons. The minimum amount of a charter capital of an LLC should not be less than RUR 10,000(approx. USD 285). At the present time a statutory amendment is being discussed, which relates to a considerable increase in a minimum charter capital to be registered when a new company is being set up.

The superior governance body of an LLC is the General Meeting of its participants. An executive body (collective and/or sole) will also be established being in charge of carrying out the current management of a company business and such body will be accountable to the General Meeting of a company participants. The sole executive body may be elected from the outside, not from amongst a company's participants. A company's Charter may provide for the formation of a company's Board of Directors (Supervisory Board).

This type of incorporation is the most common in Russia as, unlike a business carried on by private entrepreneurs or in the form of a partnership, the participants only bear their risks within the amount of their participatory interests (units) and a business, which is carried on in the form of an LLC, is subject to less statutory regulations as opposed to the same of a joint-stock company.

As contrasted with those of an LLC, the participants of an Additional Liability Company (hereinafter referred to as "ALC") are jointly liable for a company's obligations to the extent of their personal property, taking into account an amount equal for all of the participants representing the even multiple to the cost of their participatory interests (units) as provided for by the company Charter. In other respects, the regulation of an ALC business is similar to the one of a LLC.

Carrying on a business in the form of an ALC is advisable where the participants are trying to raise confidence with the creditors (by taking additional responsibility for company's obligations not only to the extent of their participatory interests (units) but of personal property of the participants as well).

This type of commercial organization has not become common in Russia and can hardly be found across the country.

A commercial organization, the charter capital of which is divided into a certain number of shares certifying the participants' (shareholders') personal rights relating to a company, is recognized as a Joint Stock Company (hereinafter referred to as "JCS"). In JCS, shareholders are not liable for a company's obligations and are bearing their risks of losses in connection with the company's business activity to the extent of the value of their shares.

The superior governance body of a JCS is the General Meeting of Shareholders. If a company comprises more than fifty shareholders then the Board of Directors (Supervisory Board) has to be established. The executive body of a company may be collective and/or sole. The executive body is exercising the current management over a company's business and is accountable to the Board of Directors (Supervisory Board) and the General Meeting of Shareholders.

The JSCs represent the classic joining of capitals, which enable to accumulate considerable financial resources for the purposes of carrying on large-scale businesses.

A JSC may be incorporated in either public or a private form. There are the following principal differences between a Closed Joint-Stock Company (hereinafter referred to as "CJSC") and an Open Joint Stock Company (hereinafter referred to as "OJSC"):

• the number of shareholders in a CJSC cannot exceed fifty persons, the respective number of persons for a OJSC is not limited;

• preemption rights for the acquisition of shares ready for sale by other company shareholders: the shareholders of a CJSC enjoy their preemption rights at the price being offered to third persons; the shares of an OJSC may be freely transferred to third parties;

• distribution of shares: the shares of a CJSC may be distributed amongst either its founding members or certain persons who have previously been assigned to be entitled for such action; OJSC may offer its shares to public at large, including the public offerings provided by the underwriters;

• the minimumcharter capital for a CJSC is RUR 10,000 (approx. USD 285) whilst such charter capital for an OJSC is RUR 100,000 (approx. USD 2,857).

The form of an OJSC is commonly opted for by the large-scale businesses, which are planning to raise funds for the account of public offerings. For these purposes the laws have provided numerous requirements in respect of OJSC activities, particularly where their shares are intended for a free-float. It has been disputed whether the form of CJSC is either advisable or appropriate as it has not any major differences from a LLC.

The Russian laws provide for an opportunity to set up legal entities in other forms of incorporation but such forms have a very specific nature, therefore, they are selected, as a rule, for carrying on business activities in considerably rare cases.

Non-profit organizations, as it has been mentioned above, are established not for business purposes but to achieve certain social, charitable or other non-commercial objectives and therefore cannot be used for profit-making.

Constitutional Documents

A legal entity is carrying on its business either in accordance with its Charter (this applies to companies, cooperatives, legal entities established by the sole founder) or in conformity with the Charter and the Memorandum of Association (in relation to legal entities forming a group), or in conformity with the Memorandum of Association (partnerships).

The Memorandum of Association is a document which fixes that the founders come into agreement upon the following matters:

• establishment of a legal entity;

• the procedure of how they shall act jointly in order to set up such legal entity,

• the conditions upon which their personal assets shall form the assets of the company and how they shall participate in the company's business.

The constitutional documents shall comprise a name of an entity, its registered address, the procedures of management of this legal entity as well as they shall comprise other details required by the laws for the respective type of legal entities. As a general rule, any alterations made to the constitutional documents will take their legal effect to a third party as from the date of the state registration of such alterations.

Name and Registered Address of a Legal Entity

A legal entity shall have its name comprising the form of incorporation. A registered address is determined in accordance with the place of a company's state registration. The state registration is to be effected by the territorial body of the Federal Taxation Service of Russia taking into account the intended place of a company's state registration. The name and the registered address of a legal entity shall be provided in the constitutional documents.

Registration

Commercial organizations are subject to state registration as provided for by the Federal Law No.129-FZ dated as of August 08, 2001 "On the State Registration of Legal Entities and Sole Entrepreneurs". Therefore, the state registration is effected by the territorial body of the Federal Taxation Service of Russia at the permanent address where a company's executive body is located. In case of absence of the executive body, the registration is to be completed taking into account the address of the other company's body. For the purpose of the state registration, a complete set of documents shall be submitted to the registering body and the applicant's signature on all of these documents shall be notarized.

The state duty representing the amount of RUR 4,000 (approx. USD 140) shall be paid for the registration of a legal entity. The state registration is to be completed in a term not exceeding five business days as from the date when the documents have been submitted.

The laws of the Russian Federation provide for certain special requirements relating to setting up credit or insurance organizations, which are being established using foreign investments, and also relating to investments in the charter capital of companies playing strategic role in the provision of the country defense and the state security.

Licensing

A license represents a special permission for a specific kind of activity provided that a licensee shall comply with the licensing conditions and requirements set forth by a licensing body to a legal entity. The activities, which are subject to licensing are listed in the Federal Law No.128-FZ as of  August 08, 2001 "On Licensing of Certain Types of Activities" (hereinafter referred to as the "Law on Licensing"). The Law on Licensing comprises the list of activities, which have to be licensed separately under special provisions of the legislation as follows: the activities of credit institutions, telecommunications, exchange activities, insurance, activities of professional participants of the securities market, foreign trade activities, exploitation of natural resources, etc.

An applicant for a license has to submit to respective licensing body a complete set of documents as provided for by the laws.

A business activity carried on without a license may entail either administrative or criminal liability, and the administrative penalties may be imposed in case of a failure to comply with the licensing requirements.

Representative Offices and Branches of Russian Companies

A Representative Office is a separate subdivision of a legal entity located at the address different from a registered address of that entity which functions are representation and  protection of the legal entity's interests.

A Branch is a separate subdivision of a legal entity located at the address different from a registered address of that entity and is performing all or a part of its functions, including functions of a representative office.

Neither representative office nor branch is recognized as a legal entity. They are provided with a property by a legal entity, which had set them up, and act in accordance with the provisions adopted by that legal entity. The representative office or branch senior officers are appointed by a legal entity and are acting in compliance with the letter of attorney. The representative offices or branches have to be specified in the constitutional documents of a legal entity that had established them.

Representative Offices and Branches of Foreign Legal Entities

Foreign legal entities may carry out their activities on the Russian territory as separate subdivisions - branches or representative offices. Representative office can have only representative and protective functions of the foreign legal entity in Russia while a branch can perform all or part of the functions of the foreign legal entity, i.e. it can also perform commercial activities in Russia.

Branch of a foreign legal entity (as opposed to its representative office) is entitled to carry out business activities in Russia from the date of its accreditation. Accreditation process and maintaining of the state registry is performed by the Office of Accreditation by the State Registration Chamber under the Ministry of Justice of the Russian Federation (hereinafter referred to as- "Registration Chamber").

For the accreditation of the branch or representative office a foreign company should submit to the Registration Chamber an application and a set of documents translated into Russian and apostilled (in accordance with the Convention Abolishing the Requirement of Legalization of Foreign Public Documents as of October 05, 1961). In particular, the set of documents shall include a letter of recommendation of a foreign bank that maintains a foreign legal entity, with proof of its solvency, and for the accreditation of a representative office - at least two letters from Russian business partners.

A lump sum fee of RUR 120,000 (approx. USD 4,200) shall be paid for the accreditation of the branch of a foreign company. In addition to the registration fee for accreditation, some fees are charged separately, calculated according to the requested duration of the accreditation of the branch (from one to five years) or representative office (from one to three years) and to the work of the Registration Chamber to review and prepare the documents.