What is the main source of law authorising this entity form?

Russian Civil Code, Part 1; and

Federal Law “On Limited Liability Companies” No. 14-FZ of 8 February 1998.

Give a brief summary of this entity form, including

Does the entity possess separate legal personality?

The LLC has legal personality.

(Maximum) period of existence

There is no maximum period of existence, unless otherwise is prescribed by the LLC’s Articles of Association.

Governing document(s)

The LLC is typically governed by its Articles of Association approved by the LLC’s incorporators/shareholders and registered in the Unified State Register of Legal Entities (as an alternative, model Articles of Association may be used – this option is rarely used in practice).

Liability of incorporators / shareholders

Incorporators/shareholders are in most cases not personally liable for the debts of the LLC, save to the extent to which their shares are not fully paid-up (including cases of excessive valuation of non-monetary contributions made to the LLC’s share capital).

Limited liability of shareholders is subject to limited instances of piercing the corporate veil (for instance, if an LLC becomes bankrupt due to a fault of its shareholders, in certain cases when an LLC, being a subsidiary, acts in accordance with instructions of its mother company, or in certain cases when a non-operating LLC is excluded from the Unified State Register of Legal Entities).

(Governing) bodies

Mandatory governing bodies: General shareholders’ meeting and at least one (1) chief executive officer (individual, management company or management individual entrepreneur). If an individual is appointed as a chief executive officer, his exact title may vary depending on the Articles of Association: General director, director, president etc.

Optional governing bodies: More than one (1) chief executive officer, Board of Directors (supervisory board) and executive board.

Other particularities

An internal audit commission (or a sole internal auditor) may be appointed by the LLC’s shareholders as a body of internal financial control. The functions of such internal audit commission (sole internal auditor) may be transferred to an external audit company (sole external auditor).

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

A Russian LLC may be involved in regular commercial international transactions – no rules specific to LLCs with respect to such transactions. However, cross-border reorganizations are not regulated by Russian corporate laws meaning that a Russian LLC may be reorganized only in accordance with Russian laws (i.e. with the involvement of other Russian legal entities only): A Russian LLC may not be merged with a foreign entity to create a new entity, a Russian LLC may not be separated to create new foreign entities etc.

Certain international transactions and corporate actions involving certain foreigners are currently temporarily restricted by extraordinary orders of the Russian President due to the ongoing international conflict.

In addition, extraordinary rules were implemented due to the same reasons authorizing conversion of certain representative offices and branches of foreign entities opened in Russia into Russian LLC’s with involvement of a court.

Can this type of entity be publicly listed or held?

No, only public joint stock companies can be publicly listed (have publicly listed shares).

Can this type of entity be used for a non-profit or charitable organization?

Russian non-profit (non-commercial) organisations have their own legal forms. An LLC may be involved in charity, but commercial activities shall still dominate.

Give a brief summary of the process of incorporation, formation, or organization, including

Note: Online/partially online incorporation options are available in Russia, but not widely used in practice. Therefore, the traditional approach is described below.

Main documents required

Various incorporation related documents (Articles of Association, minutes of the incorporators’ meeting or establishment resolution, certified incorporation application, evidence of payment of the registration fee (if applicable), documents confirming the ability of the LLC to use its address after its incorporation, duly translated extracts from foreign trade registers or similar documents in respect of all foreign corporate incorporators, as well as a duly translated extract from a passport of each foreign incorporator who is a natural person) are to be filed with Russian competent registrar (tax authorities) directly, through a multipurpose centre of state services or electronically through a Russian notary public who certified the incorporation application. Actual (non-electronic) filing is typically done either by all incorporators in person, or by their representative(s) on the basis of certified PoA(s) (notarised by a Russian notary, notarised by a foreign notary with subsequent legalisation or an apostille or certified in a Russian consulate/embassy abroad). Remote filing options are available, but rarely used in practice (except for electronic filing through a Russian notary public).

Involvement of notary, company register, governmental authorities

If an LLC is to be established by a sole incorporator, the following documents are typically prepared (no notarial certification is needed): Establishment resolution and Articles of Association.

If an LLC is to be established by multiple incorporators, the following documents are typically prepared (no notarial certification is needed): Minutes of the incorporators’ meeting, establishment agreement and Articles of Association.

An incorporation application in a special form containing various information in respect of the LLC and its incorporators must be certified by a notary or Russian competent registrar (tax authorities). In particular, signatures of all incorporators on the application are to be certified. The most recommended approach is to do this with the assistance of a Russian notary public. However, alternative approaches have worked many times in our practice (e.g. certification of the same by a foreign notary public with subsequent legalisation or an apostille, certification of the same in a Russian consulate/embassy abroad).

Timing (estimate)

If the filed documents are in good order, the LLC shall be registered within three (3) business days (excluding the filing date and the date of collecting registered documents). If the documents are filed electronically through a Russian notary public, the registration sometimes happens within four (4) business days due to the notary’s delay to make a filing on the same day when the incorporation application is certified (excluding the filing date and the date of collecting registered documents). Meanwhile, the exact timing for drafting/negotiating/collecting/signing all documents before their filing with the Russian competent registrar (tax authorities) may vary dramatically depending on actual circumstances.

Main costs, including registration and similar fees (excluding legal fees)

The registration fee is RUB 4,000. If the documents are filed electronically, the registration fee need not be paid. Notarial and legal costs may vary depending on actual circumstances.

 

 

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

Main business purposes of the LLC are broadly described in its Articles of Association and indicated in the incorporation application using special classification codes. However, this does not mean that the LLC may not be involved in practice in other types of commercial activities, unless otherwise prescribed by the Articles of Associations.

Minimum number of incorporators / shareholders and residency requirements

There must be at least one (1) incorporator; there is no residency requirement for incorporators. Note: The LLC may not be established solely by a company (Russian or foreign) that, in its turn, also has only one (1) shareholder.

Certain corporate actions involving certain foreigners are currently temporarily restricted by extraordinary orders of the Russian President due to the ongoing international conflict.

Minimum number of directors (or other applicable officers) and residency requirements

There should be at least one (1) chief executive officer. If a foreign national is appointed as a chief executive officer, they typically must be a registered Russian resident, be a national of a state with which Russia has an agreement cancelling work permits (examples: Belarus, Kazakhstan, Kyrgyzstan, Armenia), or have a work permit in Russia.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

Minimum share capital: RUB 10,000. The share capital shall be paid in full within the term specified in the establishment agreement (establishment resolution), but in any event not later than within four (4) months after the LLC is officially registered. A bank account theoretically is not required, if the share capital is paid in kind.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

Physical presence is recommended for a higher success chance. However, in practice (theoretically) all required documents may be signed by the incorporators outside of Russia. Certain international transactions and certain corporate actions involving certain foreigners are currently temporarily restricted by extraordinary orders of the Russian President due to the ongoing international conflict.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

The tax identification number (INN) is automatically provided to any newly established LLC on the day of its state registration.

What is the title of the applicable company registry?

Unified State Register of Legal Entities.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles , Ownership identification (direct and/or indirect ownership, 'beneficial owners') , Group structure , Share capital , Directors , Accounts , Insolvency, good-standing, liquidation , Liens and encumbrances on the shares , Liens and encumbrances on assets of the entity , Other (e.g. litigation, tax matters)

Substantial information/documents in respect of an LLC must be filed with tax authorities maintaining the Unified State Register of Legal Entities and is in most cases publicly available –

• Articles of Association;
• date of incorporation and registration authority;
• official address;
• shareholders (but not indirect/beneficial owners) and their shares;
• share capital;
• chief executive officer(s);
• insolvency, reorganisation and liquidation;
• scope of the LLC’s main business activities;
• licenses;
• pledges in respect of the LLC’s shares; and
• registrations with tax authorities and state non-budget funds etc.

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

Each LLC must have at least one (1) chief executive officer (CEO) having the following powers –

• representing the LLC without a power of attorney in all types of relations (including for the purposes of entering into transactions);
• issuing powers of attorney on behalf of the LLC;
• issuing internal employment orders (acts on behalf of the LLC as employer); and
• additional powers that are not provided to other bodies of the LLC by law and/or Articles of Association.

Powers of the CEO may be limited by the LLC’s Articles of Association.

The LLC may have multiple chief executive officers acting jointly or separately. The LLC may have an executive board that can share certain powers with the chief executive officer(s).

How are the members of the executive body appointed, dismissed and replaced?

Initial appointment of the chief executive officer(s): By the sole shareholder/meeting of incorporators.

After the LLC’s incorporation, depending on the actual provisions of the LLC’s Articles of Association, chief executive officer(s) and (if any) members of the executive board typically shall be appointed/elected, dismissed and replaced by the general shareholders’ meeting or (if any) the Board of Directors (supervisory board).

Information on chief executive officer(s) is to be registered with the Unified State Register of Legal Entities.

Is it possible to appoint corporate directors or must all directors be natural persons?

A legal entity may be appointed as a chief executive officer; it will be called a management company.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

The LLC may (but is not obliged to) have an executive board.

The LLC may (but is not obliged to) have a Board of Directors (supervisory board) consisting of non-executive directors.

With respect to the appointment/election of the executive board members, see above.

Members of the Board of Directors (if any) shall be appointed/elected, dismissed and replaced as prescribed by the Articles of Association (typically – by the general shareholders’ meeting).

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The name is the general shareholders’ meeting. If the LLC has only one (1) shareholder, minutes of the general shareholders’ meeting are replaced with resolutions of the sole shareholder.

Typical principal tasks/responsibilities (assuming that the LLC does not have a Board of Directors):

• determining the principal directions of the LLC’s activities, passing resolutions relating to participation in associations and other alliances of commercial organisations;
• affirming the LLC’s Articles of Associations, amendments to this document or affirming a new edition of the LLC’s Articles of Association, resolving that the LLC in future shall act on the basis of model Articles of Association or that the LLC shall discontinue acting on the basis of model Articles of Association, changing the amount of the LLC’s share capital, name or registered address;
• appointing a chief executive officer and premature termination of his/her powers, transferring the powers of a chief executive officer to a commercial organisation or individual entrepreneur (management company, manager), affirming such management company/manager and provisions of an agreement with it/him/her;
• appointment and dismissal of an internal auditor/members of an internal audit commission (if any) of the LLC;
• affirming the annual reports and annual accounting (financial) reporting documentation of the LLC;
• distributing the LLC’s net profits between shareholders of the LLC;
• affirming (approving) documents governing internal activities of the LLC (internal documents of the LLC);
• approving an issue by the LLC of bonds and other registrable securities;
• initiating an external audit of accounting (financial) reporting documentation of the LLC, appointing an external audit company (individual external auditor) and determining the amount of the remuneration for the auditor’s services;
• initiating reorganisation or liquidation of the LLC;
• appointing the liquidation commission (liquidator) of the LLC and affirming liquidation balance sheets;
• providing consent for or subsequent approval of entry by the LLC into interested party transactions and major transactions in cases specified by applicable laws; and
• providing consent for or subsequent approval of entry by the LLC into transactions of other types as prescribed by the LLC’s Articles of Association (if the CEO’s powers are limited by the Articles of Association).

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Depending on the issue to be resolved and on provisions of the Articles of Association, the majority/quorum requirements may vary.

The general principle is that, unless otherwise is prescribed by law and/or Articles of Association, an issue is to be resolved by the general shareholders’ meeting on the basis of a simple majority of votes of the total amount of votes of all shareholders (50% + 1 votes as compared to the total amount of votes of all shareholders).

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

LLCs that fall within the criteria established by Russian laws for small size or medium size enterprises may enjoy various privileges and state support measures prescribed by applicable laws and regulations. Special tax rules are applicable to the LLCs that fall within the criteria established by Russian laws for “major taxpayers”.

In addition, various privileges and state support measures prescribed by applicable laws and regulations may be provided to LLCs operating in certain business sectors (for instance, to IT companies) and/or in certain territories (for instance, in various special economic zones).

If the total number of an LLC’s shareholders becomes more than 50, such LLC shall be reorganised (converted) into a non-public joint stock company or a production cooperative.

If an LLC has over 100 employees, it is obliged to provide its primary trade union organisation (if any) with at least one (1) properly equipped room.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

The LLC must submit its accounting (financial) reporting documentation to competent tax authorities and, in certain circumstances, to competent state statistics authorities.

Filing of annual accounting (financial) reporting documentation with competent authorities must be made once per year.

Depending on circumstances, an LLC may have an obligation to prepare and disclose interim accounting (financial) reporting documentation from time to time.

Is the entity permitted to determine its own financial year?

No.

Is the entity subject to any statutory (external) auditor obligations?

Obligatory annual external audit is required only in cases prescribed by applicable laws (for instance, if the LLC’s revenue for the preceding calendar year is over RUB 800m, or if the LLC’s assets under the balance sheet for the preceding year are over RUB 400m).

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

Appointment of internal auditor(s) (internal audit commission) is optional. In certain circumstances, an LLC is obliged to appoint an in-house accountant or engage an accounting outsourcer.

What is the title designated for ‘ownership interests' (e.g. shares, quota, interests, membership)?

Depending on translation variants they may be called “shares” or “participatory interests”.

Are different classes of ownership interests possible? If so, what are some examples of different classes?

Generally, no. However, certain additional rights and obligations of a specific shareholder may be fixed in the LLC’s Articles of Association upon the LLC’s incorporation or later by a unilateral resolution of all shareholders. However, if an additional obligation is to be fixed regarding a particular shareholder (not all shareholders), not less than two-thirds of the total votes of all shareholders are needed, including votes of such particular shareholder, or subject to a written consent of such shareholder.

What documentation is required for the transfer of ownership interests?

The basic principle is that shares in an LLC may be transferred on the basis of an agreement certified by a notary public. However, there are certain exceptions prescribed by law (for example, in case of a legal succession). Existing shareholders have pre-emptive rights.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

The general approach is that the shares are transferred on the basis of an agreement (for instance, sale and purchase agreement) certified by a notary public. After that the notary shall prepare and deliver an application to the Russian competent registrar (tax authorities), and the latter amends the information on the LLC’s shareholder in the Unified State Register of Legal Entities accordingly.

The LLC’s Articles of Association may establish a requirement to obtain consents of other shareholders for a share transfer.

A consent of the Russian Federal Antimonopoly Service is required, if the transaction meets specific criteria concerning the value of total assets of the transferee and the target LLC prescribed by Russian antimonopoly law. A consent of the Governmental Commission for Supervision over Foreign Investments may be required if the transaction relates to shares in entities of strategic importance.

Certain transactions with shares in Russian LLCs involving certain foreigners are currently temporarily restricted by extraordinary orders of the Russian President due to the ongoing international conflict.

Are there any applicable stamp duties imposed when transferring ownership interests?

No stamp duty. However, there will be notarial costs that may vary.

How are shares issued? (including information on payment obligations, registration requirements)

Shares in LLCs are not negotiable instruments (securities). Therefore, they are not “issued”.

All current shares/shareholders are to be duly reflected in the Unified State Register of Legal Entities, as well as in the LLC’s internal list of shareholders.

The initial share capital is to be paid in full within the term specified in the establishment agreement (establishment resolution), but in any event not later that within four (4) months after the LLC is officially registered.

If it is decided to increase the share capital, additional contributions are to be made in the order and within the terms prescribed by applicable laws and respective resolutions.

Further information on equity contributions, e.g. , Non-cash payments on shares; (Share premium) contributions without issuance of shares , Can partially paid shares/ownership interests permitted and what are the restrictions on them?

Shares may be paid in cash or in kind (in the latter case the monetary value is to be determined by shareholders, in certain cases – with the obligatory engagement of an independent appraiser).

A share premium may be established (i.e. the amount payable for the shares will be greater than their nominal value).

It is also possible for shareholders to make a so called “contribution into assets” of an LLC within a special corporate procedure – de facto donation to the LLC without any changes in the LLC’s share capital.

Partially Paid shares are not permitted. Negative legal consequences of cases when shares are paid only partially will vary depending on the circumstances (whether it is primary or additional share capital).

Any requirements with respect to share cancellation, share repurchase and other capital reductions

The share capital may be decreased by a resolution of the general shareholders’ meeting by decreasing the nominal value of all shares or by cancellation of shares owned by the LLC itself.

The share capital may not be decreased, if (as a result of such decrease) the amount of the share capital becomes less than RUB 10,000.

The share capital shall be decreased, if the LLC’s net profit is less than the LLC’s share capital as of the end of any financial year starting from the third financial year of the LLC.

An LLC may acquire its own shares only in cases prescribed by applicable laws (for instance, if a shareholder withdraws from the LLC or is expelled from the LLC in the order prescribed by the law).

Any requirements with respect to distributions to shareholders?

The LLC’s net profits may be distributed between shareholders on the basis of a resolution of the general shareholders’ meeting. This may be done once per quarter, once per half a year or once per year.

The general principle is that the net profits shall be distributed to all shareholders in proportion to the nominal value of their shares. However, an alternative approach may be fixed in the LLC’s Articles of Association.

The exact term for distribution of the net profits is established by the Articles of Association or a shareholders’ resolution, but this term shall anyway not exceed 60 calendar days upon the respective distribution resolution date. If the term for distribution (payment deadline) is not established as indicated herein, the distribution must actually occur within 60-days of the date on which the distribution is approved by the resolution of shareholders or the sole shareholder.

Russian law establishes circumstances in which the net profits of an LLC may not be distributed (for instance if such distribution triggers insolvency).

Net profits distribution in Russian LLCs to certain foreigners is currently temporarily restricted by extraordinary order of the Russian President due to the ongoing international conflict.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes, shareholders may enter into a shareholders’ agreement that is officially called an “agreement on exercise of the company’s shareholders’ rights”.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

May vary dramatically depending on actual circumstances.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

The tax is called the corporate income tax.

The “general approach” rate is 20%. It is split into two (2) parts: 3% (starting from 2031 – 2%) – payable to the federal budget, and 17% (starting from 2031 – 18%) – payable to a regional budget. The “regional part” of the tax rate may be reduced by regional laws for certain categories of taxpayers.

In addition, various exemptions and special rules may apply.

Summary of any specific matters, e.g. recent or prospective major legal developments

Special temporary rules and restrictions applicable to LLCs (especially to those LLCs which are owned/controlled in full or in part by foreigners considered by applicable Russian legal acts as unfriendly) were enacted by extraordinary decrees of the Russian President and other legal acts due to the ongoing international conflict.