Russian business law: the essentials

The reference on a legal act with the use of all its requisites looks like the following:

The Federal Law dated February 8, 1998 No. 14-FZ (edited on 05.05.2014) "On Limited Liability Companies" // "The Collection of the Legislation of the RF", 16.02.1998, No. 7, page 785.

2. The Constitutional Basics of Entrepreneurship

The Constitution of the Russian Federation is at the top of the pyramid of the acts, and it regulates entrepreneurship. It was adopted by national vote on December 12, 1993.

2.1. The Legal Features of the Constitution

The main legal features of the Constitution are specified in part 1 of Article 15 of the Constitution of Russia:

2.1.1. The Highest Legal Force

The highest legal force of the Constitution means that its norms have a priority over the norms of any other legal acts acting in the territory of Russia. All other acts shall correspond to the Constitution. If a norm enshrined in a federal law contradicts with the provisions of the Constitution, the norm of the Constitution shall apply.

2.1.2. The Direct operation

The direct operation of the Constitution means that it is possible to directly refer to its norms for the purposes of legally justifying one’s position.

2.1.3. The Application in the Whole Territory of Russia

Despite the fact that republics, which are also called «states» in the Constitution, are part of the Russian Federation, the Constitution also acts in the territory of these subjects of the federation, without any exceptions.

2.2. The Main Provisions of the Constitution, Regulating the Entrepreneurial Activities

In the Russian Federation:

i. Freedom of economic activity is provided (Article 8),

ii. The unity of economic space, free movement of goods, services, and financial means are guaranteed (Article 8),

iii. The support for competition is guaranteed (Article 8), the activity aimed at monopolization and unfair competition is forbidden (Article 34),

iv. The equality of private, state, municipal, and other forms of ownership is established (Article 8),

v. The possibility of finding of land and other natural resources in a private property is guaranteed (Article 9),

vi. The equality of all people before the law and the court is guaranteed (Article 19),

vii. Everyone has the right to free use of his abilities and property for entrepreneurial and other economic activity, not prohibited by law (Article 34),

viii. No one may be deprived of one’s property, with the exception of a court decision. Forced confiscation of the property may be carried out only for state needs, on conditions of preliminary and complete compensation (Article 35),

ix. Everyone has the right to state compensation for the damage caused by unlawful actions (or inaction) of bodies of state authority and their officials (Article 53).

3. International Legal Acts

3.1. The Main International Treaties which the Russian Federation is a party to

According to the Constitution of the Russian Federation, the generally recognized principles and norms of international law, and the international treaties of the Russian Federation, are a component of its legal system. If an international treaty of the Russian Federation establishes other rules than those envisaged by law, the rules of the international treaty shall be applied (part 4 of Article 15).

The provisions of officially published international treaties of the Russian Federation, which do not require a publication of interstate acts for application thereof, operate directly in the Russian Federation (part 3 of Article 5 of FL on International Treaties). In the case of an absence of an appropriate norm of national legislation, it is permissible to directly refer to such an international treaty for the purposes of justifying one’s position. For the implementation of other provisions of international treaties of the Russian Federation, relevant legal acts are being adopted. Additionally, in some cases, the international treaties of the Russian Federation are subject to ratification (Article 15 of FL on International Treaties). Ratification is a procedure by which the international treaty acquires a legal force in Russia and becomes obligatory for all. Ratification is carried out by the federal law.

3.2. The Acts of the Customs Union

Russia is a member of the Eurasian Economic Union.[18 - Besides Russia, as of today it also includes Belarus, Kazakhsatan, Armenia and Kyrgyzstan.] Within the EEU, the Customs Union (hereinafter – CU) functions, which includes bodies that carry out the uniform customs regulation in all participating countries of the CU. The fundamental act of the CU is the Customs Code of the CU.

4. Laws

The two main types of laws in Russia are federal constitutional laws and federal laws.

4.1. Federal Constitutional Laws

In Russia, federal constitutional laws can be adopted only with respect to those matters which under the Constitution require an adoption of a federal constitutional law. In other cases, a federal law is adopted.

The main federal constitutional laws which entrepreneurs may encounter, while doing business in Russia are:

i) FCL on Constitutional Court of the RF;

ii) FCL on Judicial System of the RF;

iii) FCL on Supreme Court of the RF;

iv) FCL on Arbitration Courts in the RF.

4.2. Federal laws

In comparison with federal constitutional laws, the federal laws have a simpler adoption procedure and less legal force. Therefore, federal laws cannot contradict the federal constitutional laws. In case of a contradiction, the federal constitutional law shall be applied. This rule is not fixed in any normative legal act, but it is generally accepted.

4.2.1. The Laws of the Russian Federation

The modern system of sources of law started to form in Russia after the adoption of the Constitution of the Russian Federation in 1993. Such terms like "the federal constitutional law" and "the federal law" were first set in the Constitution. At the same time, in the history of Russia there was a period of two years (from the end of 1991 till the end of 1993) when the Soviet Union had already collapsed, and the new constitution was not yet adopted. The laws being adopted at that time were called as laws of the Russian Federation (laws of the RF), and were not called federal laws.[19 - By the way, some legal acts of the USSR are still in force in Russia today (to the extent to which they do not contradict to the active Russian legislation).] Some of those continue to operate until today (for example, Law on Mass Media, Law on Consumer Rights Protection, and the Competition Law). The laws of the RF are of the same legal force as federal laws.

4.2.2. Codes

In Russia, the code is a form of a federal law, therefore in case of an absence of special instructions, it has the same legal force as federal laws. However, such instructions are contained in the majority of codes. For instance, paragraph 2 of Clause 2 of Article 3 of Civil Code of the Russian Federation (hereafter CC of the RF) stipulates that the norms of civil law, which are contained in other laws, have to correspond with the CC of the RF. This rule finds confirmation thereof in the judicial practice.

An agreement was concluded by and between an organization (subscriber) and a telecommunication operator, according to which the telecommunication operator provided to the subscriber access to a telephone network. Despite the fact that the agreement was made for an indefinite term, the telecommunication operator refused to prolong its action for the recurrent year. Due to the disconnection from telecommunications, the subscriber addressed the court. The subscriber referred to the following: according to the CC of the RF the agreement of the provision of communication services is public, and therefore the operator could not have terminated it unilaterally. The telecommunication operator claimed that according to the federal law N 126-FZ dated July 7, 2003 "On Communication," such an agreement is public, provided that it has been concluded with a citizen.

The Supreme Court of Arbitration of the Russian Federation considered the case as a supervisory instance. In the Decision of the Supreme Court of Arbitration No. 9548/09, dated October 5, 2009, it was specified that by virtue of paragraph 2 of Clause 2 of Article 3 of the CC of the RF norms of civil law, as is contained in other laws, shall correspond with the CC of the RF. In this regard the provisions of the Federal Law N 126-FZ dated July 7, 2003, "On Communication," which stipulates that the agreement for provision of communication services, concluded with a citizen, is public, and cannot be interpreted as a limiting norm of CC of the RF. Therefore, any agreement of the provision of communication services is public.

At the same time, courts do not always adhere to the rule about the supremacy of norms of the CC of the RF, over the civil norms that are contained in other sources. Thus, courts apply the norms of Articles 6–11 of FL on Transportation-Forwarding Activities, which contradict Article 803 of the CC of the RF. These articles state norms on the responsibility of the forwarding agent under the transportation-forwarding contract. Article 803 of the CC of the RF states that the basis and the extent of responsibility are defined explicitly by the norms of chapter 25 of the CC of the RF. In contradiction to this rule, clause 1 of Article 6 of FL on Transportation-Forwarding Activities, states that the basis and the extent of the responsibility of the forwarding agent are defined not only by the CC of the RF, but also by the FL on Transportation-Forwarding Activities. Furthermore, Clauses 3–5 of Article 6 and Articles 7–11 of the aforementioned law, set a different, more difficult order for bringing the forwarding agent to responsibility, than is provided by the CC of the RF.

The necessity for the application of the mentioned articles of FL on Transportation-Forwarding Activities is also confirmed by the supreme courts (see, for example, the Information Letter No. C5–7/UZ-886 dated March 5, 2003 of the Supreme Court of Arbitration of the RF "About the Federal Law On Transportation-Forwarding Activities).

The core codes for conducting entrepreneurship in Russia are:

i) The Civil Code of the Russian Federation