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Business in St. Petersurg
Under the Soviet system, the four forms of ownership were state, communal/social, trade-union and private. Legal entities were state-owned and centrally-controlled. It became apparent that in order to restructure the economy it was necessary to transfer as many enterprises as possible to private ownership. To this end, privatisation has been conducted by attracting strategic investors in key industries of the economy, often by conducting investment tenders.
To encourage market reforms, a new Civil Code of the Russian Federation has been adopted which integrates various types of market-oriented entities. As a result of the new Civil Code, Russia has seen swift growth in the number of newly established legal entities.
The first part of the Civil Code provides an extensive list of legal structures of business entities. The primary structures are as follows: general partnerships, limited partnerships, limited liability companies, double liability companies, open and closed joint-stock companies, production co-operatives and unitary enterprises.
4.1 Individual Enterpreneuship
An individual may engage in entrepreneurial activity without establishing a legal entity once he/she is registered with state registration authorities as an individual entrepreneur. Individual entrepreneurs include heads of farms that operate without having formed legal entities, once such farms have undergone state registration.
An individual entrepreneurial activity carried out without the formation of a legal entity is subject to regulations applicable to market-oriented legal entities, unless otherwise implied by legislation, other legal regulations or the nature of the legal relationship.
An individual engaged in individual entrepreneurial activity who has not established a legal entity and who is not registered as an entrepreneur may not refer to the lack of his/her entrepreneurial status with regard to agreements he/she has concluded.
An individual entrepreneur is liable for his/her obligations with all his/her property except that which may not be seized under current legislation.
4.2 Establishing Presence in Russia through a Representative Office or Branch
Representative offices and branches are isolated subdivisions of legal entities, situated away from their place of location. A representative office represents and defends the interests of the legal entity. Besides executing the functions of a representative office, a branch also performs other functions of the legal entity Representative offices and branch offices are not regarded as legal entities, and act on the basis of regulations established by the legal entity that created them. Representative offices and branches must be mentioned in the constituent documents of their legal entities.
Branch offices may carry out business activities on behalf of the legal entity. Representative offices and branch offices of Russian companies do not need to be registered by the state. However, it is necessary that they be registered with both the tax authorities and the social funds in the place of their location. The management of an accredited branch of a foreign legal entity must annually file a report on its activities with the State Registration Chamber of the Ministry of Justice of the Russian Federation.
Activities of representative offices of foreign legal entities are regulated by the Decision of the Council of Ministers of the USSR ¹ 1074 of 30 November 1989 whose provisions are valid unless they are not consistent with current legislation. In the past, the activities of a representative office were quite restricted. Representative offices could perform economic activities in Russia only to fulfil specific contracts. The representative office could also solicit orders and sign contracts.
With the break-up of the former Soviet Union, and the adoption of more liberal foreign investment laws, the representative office is now the main way in which a foreign company may establish a direct business presence in Russia.
However, a representative office only represents the interests of the foreign legal entity while a branch is established to carry on the Russian business activities of the foreign legal entity in its own name.
The number of «accredited» expatriate employees in a representative office is limited.
4.3. Presence in Russia through Market-Oriented Entities
In lieu of establishing a representative office, a foreign legal entity may choose to conduct Russian business operations by investing in enterprises established jointly with Russian individuals or a Russian legal entity by establishing businesses which fully belong to the foreign entity or by acquiring enterprises, assets, stocks, shares, bonds or other securities which, in accordance with Russian legislation, may belong to foreign investors.
4.3.1 Limited Liability Companies
A limited liability company (LLC) docs not require the personal involvement of its members in the management of the company's affairs. The Civil Code of the Russian Federation and Federal Law «On limited Inability Companies* provide the basic criteria of an LLC. The following are some of the characteristics of an LLC:
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4.3.2 Joint Stock Company(JSC)
Both open and closed JSCs are legal entities which act on the basis of the articles of association adopted by its partners. Both have unlimited duration unless otherwise stipulated by the charter. Shareholders of an open joint-stock company are not liable for the company's debts beyond their contribution.
The highest governing body of both types of entities is the general shareholders meeting. The general shareholders meeting takes decisions regarding making changes to the charter and charter capital, the approval of the annual report as well as reorganisation or liquidation.
Either the Board of Directors, if so authorised by the Charter, or the shareholders appoint a general director who shall have the right to act on the company's behalf without a power of attorney The Board of Directors must also approve the general director's decision on staffing the Directorate.
The number of directors is determined by the Charter or by the General Shareholders Meeting. In an open JSC with more than 1000 shareholders, there must be at least seven members on the Board of Directors, and nine if the company has more than 10,000 shareholders.
The minimum charter capital of a closed JSC is 100 minimum monthly wages and 1000 minimum monthly wages for an open JSC.
The main difference between an open and closed JSC is the procedure for transferring shares by current shareholders. A shareholder in a closed JSC may only sell its shares with the prior consent of the other shareholders. There is no such restriction for shareholders in an open joint stock company who, therefore, may cede their shares to other persons without the consent of other shareholders.
There are other differences between open and closed JSCs regarding shareholders' rights.
A JSC may not consist of a single shareholder which is a one-person business entity.
In general, a JSC is currently the most popular legal form of legal entity which carries out business activities in the Russian Federation. A JSC may be either fully owned by a single individual or legal entity or owned by a group of shareholders.
The main differences between a JSC and an LLC:
Partnerships arc legal entities established for the purpose of generating profit. Pursuant to item 2 of article 66 of the Civil Code of the Russian Federation, partnerships may be established in the form of a general partnership or a limited partnership.
126.96.36.199 General Partnership
The following are some of the characteristics of a general partnership:
188.8.131.52 Limited Partnership
The following are some of the characteristics of a limited partnership:
4.4 Registration Procedures and Authorities
4.4.1 Representative Offices and Branches of Foreign Legal Entities
Representative offices and branches of foreign legal entities are officially recognised by a process called «accreditation».
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184.108.40.206 Branch Accreditation
Pursuant to Federal Law ¹160-FZ of 9 July 1999 "On foreign investment in the Russian Federation", branches of foreign companies should be accredited in accordance with the procedure established by the government of the Russian Federation.
In accordance with Resolution of the Government of the Russian Federation ¹1419 of 21 December 1999, branches of foreign companies must be accredited by the State Registration Chamber of the Ministry of Justice of the Russian Federation. Accreditation is currently carried out in accordance with the temporary provisions approved by the Order of the Ministry of Justice of the Russian Federation of 31 December 1999.
To accredit its branch in the Russian Federation, the foreign legal entity submits a set of documents to the State Registration Chamber. The list of necessary documents has been established by the Ministry of Justice of the Russian Federation. The Registration Chamber is authorised to request that additional information be provided about the activities of the foreign legal entity, that which is not included in the list mentioned above.
The State Registration Chamber should complete the accreditation process within 30 days of receiving all the necessary documents. The accreditation application may be denied if any of the necessary documents are not made available or in some specific cases stipulated by legislation.
A branch is considered to be accredited once it is included in the State Register of Branches of Foreign Companies Accredited in Russia, and once an accreditation certificate is issued.
The accreditation period for branches may not exceed five years. Upon expiry of the accreditation period, the branch must discontinue its operations. If a foreign company files a written application at least 30 days before the accreditation period is to expire, the accreditation may be extended.
Fees charged to obtain the accreditation are established by the Ministry of Justice. Accreditation fees range from 500 to 1,500 USD, depending on the length of the accreditation period. A fee of 500 USD is charged for extending the accreditation period.
An additional fee of 500 USD is charged to obtain 'rush' accreditation or accreditation extensions (within 7 days).
220.127.116.11 Representative office Accreditation
Accreditation is performed in Moscow by the Ministry of External Economic Affairs, the Ministry of Science and Technical Policies, the Ministry of Finance, the State Registration Chamber of the Ministry of Justice of the Russian Federation,, the Chamber of Industry and Commerce and a number of other authorities for a period of one to three years with a possibility of extension. Accreditation may involve a fee ofupto»3,500.
In order to accredit a representative office with the Chamber of Industry and Commerce of the Russian Federation, a foreign legal entity must apply to the St. Petersburg Chamber of Industry and Commerce.
Accreditation with the Chamber of Industry and Commerce takes approximately 1 month. Once accredited, a representative office must be entered into the State Register of Representative Offices of Foreign Companies kept by the State Registration Chamber. The advantages of having an accredited representative office include obtaining the right to open rouble bank accounts for effecting current transactions (see below).
The leasing of office space by a foreign legal entity accredited as a representative office is not subject to value-added tax if a similar privilege is provided to Russian nationals or
legal entities in the country of incorporation of the foreign legal entity or if this condition is stipulated in that country's double tax treaty with Russia.
Representative offices of foreign legal entities are accredited by lodging necessary documents with the relevant registration authorities.
For more details regarding accreditation and registration issues, you may contact the Chamber of Trade and Commerce, other registration authorities or legal advisors.
4.4.2 Legal Entities
Market oriented entities established in St. Petersburg must be registered with the Registration Chamber of St. Petersburg.
However, if the amount of foreign investment in the charter capital of a legal entity is over 100,000 roubles, this entity must be registered with the Moscow State Registration Chamber of the Ministry of Justice of the Russian Federation.
Legal entities with foreign investments are registered within 30 days.
4.4.3 Resytricting Competition and Monopolistic Activity
If the total value of the assets of all founders of a newly founded company exceeds 100,000 minimum statutory monthly wages, the regional department of the Ministry of the Russian Federation for Antimonopoly Policy and Business Support must be notified of the company's foundation.
Moreover, a person who purchases shares of already existing Russian companies and acquires the right to dispose of more than 20% of the shares is required to obtain the approval of the Ministry of the Russian Federation for Antimonopoly Policy and Business Support, if the aggregate value of assets of both the company and the buyer of the shares exceeds 100,000 minimum statutory monthly wages.
Approval of the Ministry of the Russian Federation for Antimonopoly Policy and Business Support must also be obtained in a number of other cases stipulated by Law ¹948-1 of 22 March 1991 «On Competition and Restricting Monopolistic Activity in Commodity Markets».
4.4.4 Company Liquidation. Bankruptcy
A legal entity may be liquidated:
Legal entities are liquidated by a liquidation committee appointed by the founders (shareholders) of the legal entity or a body which has taken a liquidation decision. When the liquidation process is completed, the founders (shareholders) of the legal entity obtain the part of the legal entity's property which is left after the creditors' claims have been satisfied.
The bankruptcy procedure for legal entities is stipulated in Federal Law N°6-FZ of 8 January 1998 «On Bankruptcy».
In accordance with the Law, the debtor himself, his creditors, the prosecutor, tax and other authorised agencies are entitled to claim in court that the debtor be declared bankrupt.
The following bankruptcy procedures are applied to debtors:
The Law also stipulates a simplified bankruptcy procedure, which is applied to debtors who are either liquidated or absent.
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