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Outline Memorandum
Russian business vehicles (legal entities) formation

This memorandum is intended to provide a brief outline of major legal issues related to establishment of Russian business vehicles (including fully-held subsidiaries) enjoying status of an independent legal identity and is therefore confined to the category of vehicles generally referred to in the Russian civil law as "commercial" or profit-generating (business) legal entities.


1 Russian commercial (business) legal entities: overview

Generally, Russian commercial (or business) legal entities may be formed either as partnerships or as companies.

Unlike UK partnerships, partnerships formed under the Russian civil law possess a separate legal identity; therefore, the principal difference between partnerships and companies formed under the Russian civil law lays with the rule of members' (shareholders') and partners' liability allocation and limits. In partnerships, partners bear unlimited liability under the partnership obligations, whereas in companies members' (or shareholders') liability is limited to the value of participatory interests (shares) in the company equity capital held by a company member (shareholder) (with the exception of Supplementary Liability Companies (see Clause 3 (a) below) as well as a few statutory reservations affecting all companies regardless of corporate form).

Although there are very few cases where the law or subordinate legislation provide that certain business shall be operated though a company only, the combination of unlimited liability rule and the immature professional liability insurance system results in the partnerships being significantly less popular with Russian entrepreneurs and foreign investors as compared to companies. Besides, tax treatment of partnerships under Russian tax law is exactly the same as that of companies, which adds to the lack of popularity of partnerships as compared with other forms of legal entities allowed to be formed under the Russian civil law.

We therefore have further limited the scope of this memorandum to companies only.


2 Formation procedure and timeframe

Russian companies are formed by way of state registration and, as matter of Russian civil law, legally become fully operational as from the date of such registration. Nevertheless, in practice certain additional filings and official registrations are required for a newly established Russian business to be fully launched. In particular, a new company shall obtain tax registration, statistics registration and state non-budget funds registration (Pension Fund, Social Security Fund and Mandatory Medical Insurance Fund).

Statutory timeframe for registration of a newly established Russian company is five business days. However, taking into account certain preparatory work preceding filing of a company documents for state registration as well as additional filing and registration requirements referred to above, launching of a new Russian company normally requires 2 - 4 weeks. It should be further taken into consideration, however, that Government authorities and agencies involved in formation of new Russian companies are frequently failing to observe statutory time limits which results in extended formation schedule.

Moreover, as shall be discussed in Clause 8 hereof, launching of business through an already established company may be further delayed in case transacting of such business shall require a license (special permit).

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