|Member of SovereignLaw
In association with the BCC
European Business Club
Russian business vehicles (legal entities) formation
|3 Choice of a corporate form
Russian companies (including fully-held subsidiaries of foreign companies) may
be established as either Supplementary Liability Companies (SLCs), Limited Liability
Companies (LLCs) or Joint-Stock Companies (JSCs). This Section 2 summarizes major
specific features of each of the corporate forms while some additional differences
may be found in other Sections hereof.
|(a) Supplementary Liability Companies
Russian law provides for a certain degree of similarity with respect to members'
liability limitation between SLCs and partnerships. In particular, SLCs' members'
liability extends beyond the value of their respective shareholdings in the company
equity capital to the members' personal assets; however, such liability is nevertheless
limited by a certain ratio determined by company constitutive documents and multiplied
by the value of the relevant member' share value.
Otherwise, SLCs are subject to the same regulations as LLCs. Nevertheless, the
supplementary liability rule discussed above makes SLCs and partnerships equally
unattractive for investors; therefore, SLCs are not further discussed in this
|(b) Limited liability Companies
LLCs possess certain fiduciary features inherent in partnerships, though to a
less extent than SLCs. In particular, members of an LLC, unlike shareholders of
a JSC, may exercise supplementary rights and bear supplementary obligations determined
by company constitutive documents or approved by unanimous vote of all company
members with no regard to size or value of such members' participation interest
in the company equity capital. Moreover, in circumstances stipulated by law a
member of an LLC may be expelled by a court award passed on a suit filed by other
members (holding at least 10% of the equity capital in the aggregate).
Maximum number of LLC members is restricted and may not exceed 50.
LLCs equity (registered) capital is composed of participation interests that do
not qualify as securities under the Russian law and, therefore, LLCs are exempted
from securities marker regulations (unless any debenture securities are issued).
Neither public offering or placement of participation interests nor issue and
placement of any securities convertible into participation interests are possible.
Participation interests may be of unequal size and value; however, all participation
interests confer to holders thereof the right to vote in the company members'
meeting (pro rata to the size thereof unless otherwise provided by the company
constitutive documents). No different classes of participation interests may be
created under the Russian law. Maximum size and/or value of participation interest
held by a company member or maximum number of votes conferred by a participation
interest may be restricted by the company constitutive documents.
LLCs provide for the most restrictive among other companies approach towards change
of ownership structure. LLC members enjoy the statutory pre-emption right in connection
with offering of participation interests to third parties and the company constitutive
documents may (optionally) prohibit transfer of participation interest or any
part thereof to third parties. Other forms of disposal of participation interests
(including pledge thereof) are also subject to certain restrictions (both statutory
and those imposed by company constitutive documents).
|(c) Joint-Stock Companies
JSCs are the least fiduciary of all corporate forms available under the Russian
JSCs may be formed as either Closed JSCs or Open JSCs. The major differences between
the two forms are:
(I) Total number of shareholders in a Closed JSC may not exceed 50;
(II) Closed JSCs are subject to lower equity capital statutory minimum size requirement
(see Clause 4 (c) below);
(III) No public offering or placement of shares is allowed for Closed JSCs;
(IV) Closed JSC shareholders and, if so provided by constitutive documents, the
company itself enjoy the statutory pre-emption right with respect to offering
of shares to third parties;
(V) Closed JSCs are subject to less stringent information disclosure requirements.
JSCs' equity capital is formed of shares of stock (ordinary or preference). Each
ordinary share confers to its holder an equal scope and volume of corporate rights;
rights conferred by preference shares may differ from those attaching to ordinary
shares or preference shares of a different class but should be equal within the
same class of preference shares. As a rule, only ordinary shares confer the right
to vote in the shareholders meetings; however, several statutory exemptions exist
qualifying holders of the preference stock to vote on particular occasions. No
bearer shares are allowed under the Russian law.
Shares of stock are treated as securities under the Russian law, and, therefore,
JSCs are subject to a set of securities market regulations, including statutory
procedures for issue, offering and placement of shares, registration of shares
prospectus, redemption and conversion of shares, issue, offering and placement
of convertible securities, keeping of shareholders' register, corporate information
Transfer of shares held in an Open JSC is not limited in any way. Transfer of
shares in a Closed JSC to third parties is subject to other shareholders and (if
so provided by company constitutive documents) the company's pre-emption right.