Russian legal entities

Вопросник (темы) для 2 курса ИЭП (специализация Russian law)

(2013-2014)

Establishing a legal presence

RUSSIAN LEGAL ENTITIES

The legal person is an organization that has separate property under ownership, economic management or operative administration and that is liable for its obligations with this property and that may in its own name obtain and exercise property and personal non- property rights, bear duties and be a plaintiff and defendant in the court. Legal persons must have an independent balance sheet
or budget.

Whilst Russian law provides for various forms of legal entities, three of these are predominant in the market: (i) the limited liability company (the LLC), (ii) the closed joint stock company (the CJSC), and (iii ) the open joint stock company
(the OJSC).

1. Limited Liability Company (LLC)

An LLC may be founded by one or more individuals or legal entities, domestic
or foreign. It is a private company whose charter capital is divided into participatory interests. The liability of the participants for the company’s debts is limited to the amount of their contributions to the company’s capital.

An LLC may not have more than 50 participants. Otherwise it shall be subject to transformation into an open joint stock company within the period of one year.
An LLC may not have a sole participant which itself has only one shareholder.

An interest in an LLC is not deemed to be a security under Russian law, and is therefore not subject to registration with the Federal Service for Financial Markets. The minimum charter capital of an LLC is 100 times the minimum monthly wage.

A participant in an LLC has the right to withdraw its participation if the charter specifically permits it. Interest in an LLC cannot be offered to public and the existing participants have pre-emptive rights in relation to the transferred interests.

2. Joint Stock Company (JSC)

A joint stock company is a commercial organization whose charter capital is divided into a fixed number of shares. Participants in a joint stock company (shareholders) are not liable for its obligations and bear the risk of losses associated with the company’s activities to the extent of the value of their shares.

A JSC is a legal entity from the time of its state registration in accordance with the procedure established by federal law. It owns such property as is included on its books. A JSC may be ‘open’ (which may be listed on a recognized stock exchange) or ‘closed’ (which may not be listed).

2.1. Open Joint Stock Company (OJSC)

In an open joint stock company (OJSC) the number of shareholders is unlimited and shares may circulate freely on the market, meaning that they are not subject
to any pre-emption rights or similar restrictions Shares may also be traded
at stock exchanges. For example, the shares of most major OJSCs such as Lukoil, Sberbank, Aeroflot, AvtoVAZ, Norilsk Nickel, and other large companies are listed and traded on Russian Trading System (RTS) and the stock section of the Moscow Interbank Currency Exchange (MICEX).

Pre-emptive rights are exercised by existing shareholders only in relation to new issues of shares that are placed by open subscription.

The minimum issued share capital for an open JSC is 1,000 times the minimum monthly wage.

2.2. Closed Joint Stock Company

In a closed joint stock company, the number of shareholders may not exceed 50. Shareholders in a closed JSC, have pre-emptive rights in relation to transfers of shares by other shareholders. Open subscription is not available in CJSCs

The minimum issued share capital for a closed JSC is 100 times the minimum monthly wage.

3. Management Structure

Depending on its constitutive documents, Russian companies can have a two-tier, three-tier, or four-tier management structure:

3.1. General shareholders’ meeting (for JSCs) or general participants’ meeting (for LLC) (‘sobranije akcionerov / uchastnikov’). This is the principal management body that takes the most important decisions for the company, such as on establishment and liquidation, amendments to the charter, election of the board of directors, and where the charter so provides, election of the CEO of the company. The competence of the general shareholder’s meeting of a JSC is prescribed by law and cannot be changed by charter. Conversely, the competence of an LLC’s general meeting is not rigidly regulated, essentially allowing the parties to agree in the charter what they want.

3.2. Board of directors (‘sovyet directorov’). Generally, the shareholders can decide freely whether to create a board of directors; only JSCs with 50 or more shareholders must have a board of directors. If a board is created, it must have at least (1) five members in the case of a JSC or (2) the minimum number prescribed in the company’s charter in the case of an LLC.

3.3. Management board (‘pravlenie’) is a collegial executive body responsible for a day-to-day management. Shareholders are free to decide in a company’s constitutive documents whether to create a management board: there, they equally define its competence. The chairman of a management board is the chief executive officer (the CEO).

3.4. CEO. Every company (whether JSC or LLC) has a chief executive officer. He can, by law, act on behalf of the company. Any individual other than CEO needs a power of attorney executed by the CEO to act on behalf of the company.♦

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