Commercial organizations

In Russia you can do business in your own name, i.e. operating as an individual entrepreneur, as well as you can act in name of legal body being its proprietor or co-tenant.

One of the most popular methods of doing business in Russia is the registration of your company, and here you’ll have to choose the form of incorporation of your future business: Limited Liability Company LLC (ООО), Closed Joint-Stock Company JSC (ЗАО), Open Joint-Stock Company (ОАО).

What is the difference between the mentioned forms of incorporation? Which of them matches small companies and which is more appropriate for a large business?

Limited Liability Company, Closed Joint-Stock Company and Open Joint-Stock Company are profit-making organizations and there is no difference as for the type of activity. A company can perfectly deal with trade, production, construction and even science. But what’s the difference?

If a partner expects to withdraw in the future from entrepot with top profit, it is better to opt for Limited Liability Company (ООО). This can be explained by a comparatively low cost of registration.

Actually the Federal Law “About Limited Liability Companies” from 08.02.1998 № 14-FZ is in force.

The shareholders of Limited Liability Company can be one or several persons, physical body as well as corporate entity.

The partners of the company are not responsible for its obligations and bear downside risk concerned with the company’s activity within the value of contributions made by them.

The authorized capital of Limited Liability Company is divided into shares.

Limited Liability Company is a full value legal body which can:

· own a solitary property,

· acquire and exercise in its name proprietary interests and personal non-property rights,

· bear responsibilities,

· sue at law and defend a suit,

· open bank accounts in the territory of the Russian Federation and abroad.

Indispensable conditions of Limited Liability Company’s activity are:

· presence of a round stamp containing its full firm name in Russian and indication of the place of performance of the company,

· existence of registered capital of the company that can not be less than 10.000 roubles.

General Director either an executive body are able to manage the company.

The shareholder of the company can be at the same time its General Director.

The memorandum of Limited Liability Company may also foresee the limitation on inclusion of third parties in the set of partners. Holders of no less than 10 % of the authorized capital have the right to demand by judicial means the expulsion from the company of the partner who is breaking his engagements.

Each partner of the company may abandon it at any time and require the payment of the real cost of his share or getting it in the form of assets, production, etc. In Limited Liability Company all the actions enabling the change of partners involve full re-registration with the necessary introducing of modifications into the constituent documents and notification of all controlling bodies.

Another advantage of Limited Liability Company consists in the possibility of mobile management. Absentee voting of the partners is admitted with the use of telephone and e-mail.

There is also another form of incorporation extended among the enterprises of medium and large business - Joint-Stock Company.

Russian legislation foresees two basic types of Joint-Stock Company – open and closed.

The authorized capital of Joint-Stock Company consists of share denomination of the company acquired by shareholders. Closed Joint-Stock and Open Joint-Stock Company’s shares should be necessarily registered in the Federal Service on Financial Markets. Each share issue receives a state number. This procedure usually involves an additional pay and requires time.

Open Joint-Stock Company (ОАО) has the right to carry through a public subscription for issued shares and to effect a free sale of them. The company may realize a private offering as well except for the cases when the possibility of carrying out this kind of subscription is limited by the company’s statute or legal acts’ requirements. It is not admissible in Open Joint-Stock Company to establish priority rights of the company or shareholders on acquisition of shares alienable by partners. The number of shareholders is not limited.

In Closed Joint-Stock Company (ЗАО) shares are divided only among its partners or other set of persons fixed in advance. The authorized capital is divided into shares. The company has no right to carry through a public subscription for issued shares or otherwise offer them for sale to unlimited set of persons. The number of its shareholders should not exceed 50 persons, if this limit is exceeded it is necessary to modify the enterprise into Open Joint-Stock Company. Shareholder can sell his shares observing herewith priority rights of other shareholders of the company on its acquisition.