Russian business law: the essentials

3.5.4. An extract from the register of foreign legal entities of the respective country of origin of the founder (or any other proof of equal legal force), as to the legal status of the foreign legal entity

This document is formalized according to the legislation of the foreign state in which a founder (the given legal entity), is registered.

3.5.5. A Document Confirming the Payment of the State Fee

The document confirming the payment of the state fee is issued by the bank or other organization which paid the state fee. Currently, the fee for the state registration for the creation of most legal entities is 4000 rubles (Article 333.33 of the Tax Code of the RF).

3.6. Submission of Documents to the Registering Body

While establishing a profit organization, documents shall be submitted to the territorial authorities of the Federal Tax Service of Russia. The concrete office of the FTS of Russia is defined depending on the planned location of the sole executive body of the establishing legal entity. If the founders plan to place this body in Moscow, documents must be submitted to the Interdistrict Inspectorate of the FTS of Russia No. 46 for Moscow.[31 - The FTS of Russia No. 46 of the city of Moscow is located at the address: 125373, Moscow, Walking Passage, household 3, building 2.]

Documents can be submitted personally, by mail, or via the internet (the latter requires an electronic signature).

While creating a non-profit organization, documents shall be submitted to the territorial authority of the Ministry of Justice of Russia, which makes decisions on the state registration of the non-profit organization.

3.7. Receipt of the Documents by the Registering Body, Confirming the Registration of the Establishment of the Legal Entity

The state registration of the establishment of profit organizations is carried out in a period of no more than 5 business days from the date of submission of the documents to the FTS of Russia. After the specified period, the applicant can use the same address of the territorial FTS of Russia, where he/she shall be provided with certificates on state registration, and the statement on tax accounting.

At the registration of a non-profit organization, the territorial body of the Ministry of Justice is obliged to make a decision on registration within 14 business days from the date of the submission of documents. After the adoption of this decision, the territorial authority of the Ministry of Justice of Russia sends the documents independently to the FTS of Russia, which is obliged to register the organization within 5 business days. The territorial authority of the Ministry of Justice of Russia issues a certificate of state registration within three business days from the date of receipt of information from the registering body, and enters this information of the non-profit organization into the USRLE.

3.8. Reorganization and Liquidation of Legal Entities

3.8.1. Reorganization

Clause 1 of Article 57 of the CC of the Russian Federation provides 5 possible forms of reorganization:

i) Merger

At a merger of two organizations, a third, new organization is formed (formula A+B→С). Thus, the rights and duties of the existing organizations are transferred to the newly created one.

ii) Accession

One organization is absorbed by the second, thus the second continues to exist in the updated form (formula A+B→B). Thus, the rights and duties of first organization are transferred to the second one.

iii) Division

The organization ceases its existence, and with its assets, new organizations are created (formula А→B, C). Thus, the rights and duties of the existing organization are transferred to the newly created ones, according to the Transfer Act.

iv) Spin-off

A new organization is spinned from the organization, therefore the old organization continues to exist (formula А→A, B). Thus, some rights and duties of the existing organization are transferred to the newly created one, according to the Transfer Act.

v) Transformation

The organization changes its organizational-legal form (formula А→А). Thus, the rights and duties of this legal entity do not change (except for the corporate rights and duties).

The combination of various forms in the course of reorganization is allowed (for example, merger plus transformation).

The decision on reorganization is made by a general meeting of the legal entity's participants, or the legal entity's other managing body which is authorized to act in this way as per the charter. In addition to the aforementioned decision, this body sets the conditions of reorganization and implementation, and approves of the transfer act.

After entering into the USRLE a record about the commencement of the reorganization procedure, a notice about the reorganization is published twice in mass media (once a month). The creditor of the legal entity, whose claim rights have been established before the publication of the first notice of the reorganization of the legal entity, has the right to (1) demand early payment of the corresponding obligation by the debtor in a judicial proceeding, or (2) at the impossibility of early payment, demand a termination of the obligation, and compensation for the related losses (Clause 2 of Article 60 of the CC of the RF).

3.9. Liquidation

The decision on liquidation is made by the general meeting of legal entity's participants, or the legal entity's other managing body which is authorized to do so, as per the charter. This body appoints a liquidation commission (or an individual liquidator), to establish the order and terms of liquidation. From the moment of the appointment of the liquidation commission, all powers of management of the liquidated legal entity are thereby transferred.

The liquidation commission publishes a message in mass media about the legal entity's liquidation, as well as about the procedure and term of the claims application made by its creditors.

In the event that the liquidated organization has insufficient property to satisfy all creditors' claims, the liquidating commission is obliged to appeal to the arbitration court with an application for bankruptcy. The Civil Code of the RF establishes the priority order for the satisfaction of creditors' claims in Article 64.

A legal entity which hasn't submitted documents on reporting, and has not carried out transactions on bank accounts within 12 months, is subject to liquidation (Article 64.2 of the CC of the RF).

3.10. State Registration of Reorganization and Liquidation

A legal entity is considered reorganized from the moment of the state registration of legal entities that have been created as a result of reorganization. At the reorganization of a legal entity, for matters of accession, the first entity is considered reorganized from the moment the record is entered into the USRLE, concerning the termination of the activities of the acceded legal entity (Clause 4 of Article 57 of the CC of the RF). The legal entity is considered liquidated from the moment the corresponding record is entered into the USRLE.

State registration procedures of reorganization and liquidation are established in the Federal Law on Registration. In general, they are similar to the registration procedure of the legal entity's establishment.

3.11. Managing Bodies; Responsibility of Authorized Officers; Branches and Representations

3.11.1. Managing Bodies of the Legal Entity

Legal entities of various organizational-legal forms have various managing bodies. As a rule, among the managing bodies of a legal entity, the following are included:

i) the highest collegial body (in corporate organizations, this is the general meeting of participants),

ii) the sole executive body,

iii) the executive board,

iv) a revision commission.

The instructions for the obligatory formation of bodies are contained not only in federal laws dedicated to separate organizational-legal forms, but also in laws regulating different types of activities. Thus, Article 26 of the Federal Law on Education stipulates that the educational organization, regardless of its organizational-legal form, must form a collegial management body, which is a general meeting of the employees of the organization.

The corporation’s charter may stipulate that the powers of the sole executive body are given to several persons. Additionally, it is possible to create several sole executive bodies that act independently from each other in a corporation. These rules have been introduced in the CC of the RF recently, therefore the practical application of these rules is still in development.

The natural person (general director, president, chairman), individual entrepreneur (managing director), and legal entity (management company) can act as the sole executive body of the corporation.

3.11.2. Responsibilities of the Person Authorized to Act on Behalf of a Legal Entity; Responsibilities of the Members of the Executive Board of the Legal Entity; and Persons Determining the Actions of the Legal Entity (so-called "removal of a corporate veil")

A person who is granted with the right to act on behalf of a legal entity, as per a legal act or a constituent document, bears liability for losses caused to this legal entity by his/her fault. Conditions of the responsibility of the named person are dishonesty or unreasonableness of its actions. In similar cases, responsibility is also incurred by members of executive board who voted for the decisions of the legal entity which led to losses; or dishonestly evaded from participation in voting. Finally, persons, who have the opportunity to determine the actions of the organization, are liable for losses of the legal entity caused by their guilty actions (Article 53.1 of the CC of the RF).

3.11.3. Representations and Branches of the Legal Entity

Any legal entity has the right to have representations and/or branches. According to the CC of the RF, the representation is a separate division of the legal entity, and is located outside of its primary address. The representation can:

i) represent interests of the legal entity,