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,

ii) exercise their protection.

The branch differs from representation by exercising any functions of the legal entity, including the functions of representation (Article 55 of the CC of the RF).

4. Certain Types of Legal Entities

4.1. Corporate Profit Organizations

4.1.1. General Provisions on Economic Partnership and Companies

Economic partnerships and companies have many features in common. Paragraph 2 of chapter 4 of the CC of the RF contains the general provisions on partnerships and companies. These norms appeared in the CC of the RF recently, and they should be taken into account when dealing with partnerships and companies.

4.1.1.1. Charter (Share) Capital of Economic Partnership and Companies

The charter (share)^[32] capital of economic partnerships and companies is divided into parts (shares in a limited liability company and economic partnerships, stocks in the joint stock companies), which give corporate rights to the owners of these shares. Charter capital is the minimum possible size of property of the legal entity expressed in a monetary equivalent. The size of charter capital is established by the legal entity itself and is specified in its charter. Besides, information on the size of legal entity's charter capital is contained in USRLE, and anyone can receive information on it, having ordered an extract from the register.^[33]

The share size (number of stocks) at the stage of the creation of the legal entity depends on the cost of the property which the participant brought to the charter capital of the legal entity.

4.1.1.2. Contributions to Property of Economic Partnerships and Companies

Unless otherwise stated in law, as a contribution to the property of the company, participants can bring:

i) money,

ii) goods,

iii) shares (stocks) in the charter (joint) capitals of other economic partnerships and companies,

iv) state and municipal bonds,

v) exclusive rights, other intellectual rights, and rights by license contracts, which are subject to a monetary assessment.

4.1.2. Economic Companies

4.1.2.1. General Provisions on Economic Companies

Issues of interaction of economic companies’ participants (among themselves and with the company), issues of management of economic companies, receiving of profits by participants, establishment, reorganizations, and liquidations of economic companies (corporate-legal issues of economic company’s activities) are regulated by norms of the CC of the RF, as well as by the Federal Law on Limited Liability Companies and the Federal Law on Joint Stock Companies. Currently, Russian corporate law is in a period of deep reformation. Recently the norms of the CC of the RF devoted to legal entities (chapter 4 of the CC of the RF) were essentially changed. The main changes were made by the Federal law No. 99-FZ (as of May 5, 2014), and came into force on September 1, 2014. According to Clause 4 of Article 3 of Federal Law No. 99-FZ (as of May 5, 2014), legal acts (all laws and subordinate legislation) apply only to the extent that they do not contradict with the changes made to the CC of the RF by the present federal law. This should be taken into account when dealing with the FL on Limited Liability Companies and the FL on Joint Stock Companies.

4.1.2.1.1. Types of Legal Entities

In the Russian Federation, the following types of the legal entities exist:

i) Limited Liability Company (LLC),

ii) Joint Stock Company (JSC).

The joint stock companies, in turn, may be public and non-public.

4.1.2.1.2. Public and Non-public Legal Entities

An LLC is a non-publicnon-public legal entity. The JSCs may be both public and non-public. The JSC is deemed public when its shares (or securities convertible into shares) have been publicly placed by an open subscription, or have been publicly converted on the conditions established by the laws on the securities. If the charter and the firm name of the legal entity indicate that the company is public, then the rules on public companies are applied (Clause 1 of Article 66.3 of the CC of the RF).

Many of the issues concerning the activities of the public and non-publicnon-public JSCs are regulated in different ways. This must be considered while conducting business.^[34]

4.1.2.1.3. The Legal Entities’ Charter Capital

The charter capital cannot be less than the established minimal threshold (the minimum amount of the charter capital), and this is different for the various organizational-legal forms of legal entities. It is established by the federal laws on the profit of legal entities' separate organizational-legal forms (FL on Limited Liability Companies, FL on Joint Stock Companies). Moreover, the federal laws regulating the implementation of separate types of activities (for example, banking, insurance and others) may establish increased requirements as to the minimum amount of the company’s charter capital.

The minimum amount for the charter capital of LLCs and non-public JSCs is 10000 rubles; and 100000 rubles for public JSCs (the second paragraph of the Clause 1 of Article 14 of the FL on Limited Liability Companies, Article 26 of FL on Joint Stock Companies).

If at the end of the second and each subsequent fiscal year, the legal entity’s net assets value is less than its charter capital, the company is obliged to reduce its charter capital. If the net assets value is less than the minimum amount of the charter capital, it is subject to liquidation.

At a vote on various issues, the number of votes of the company's participants depends on the size of their shares in the charter capital (for LLC) or the stock number (for JSC). There are few exceptions to this rule.

4.1.2.1.4. Corporate Agreement

Some or all of the company's members may sign a corporate agreement/shareholders agreement,^[35] which will regulate the implementation of the participants’ various corporate rights (in addition to the law provisions). Such an agreement may contain, in particular, provisions obliging the members to:

i) vote in a certain way at the general meeting of the company's participants,

ii) concertedly implement other actions on the company's management,

iii) acquire or alienate shares in the charter capital (stocks) at a certain price or upon the occurrence of certain circumstances,

iv) abstain from the alienation of shares (stocks) before the occurrence of certain circumstances.

A corporate agreement is executed in writing by drawing up a single document. The terms of the corporate agreement concluded by the members of non-public company are deemed confidential and are not subject to discloser, unless otherwise provided for by the law. The shareholders’ agreement concluded by the shareholders of public JSC shall be publicly disnon-public to the extent necessary, in accordance with the Federal law on JSC. Currently, the norms establishing the terms of the relevant information disclosure are absent in the Federal Law on JSC. A company must be notified about the execution of a corporate agreement.

4.1.2.1.5. Affiliates

The company is considered as an affiliate if another company (or economic partnership) has an opportunity to govern a company’s decisions. Such an opportunity may arise, for example, from the participation of the main company in the affiliate’s charter capital, or from a contract between the main and affiliate companies.

The main company of the partnership, in some cases, bears a joint liability for the affiliate’s transactions. Such liability arises from the transactions signed by the affiliate in pursuance of the instructions, or with the consent of the main company or economic partnership (there are exceptions from this rule). Furthermore, in case of the affiliate's insolvency (bankruptcy) due to the fault of the main economic partnership or the company, the main company bears the subsidiary liability for the affiliate’s debts (Article 67.3 of the CC of the RF).

4.1.2.2. LLC

4.1.2.2.1. The Legal Nature of LLC

A LLC is one of the most common organizational legal forms of legal entities in Russia. One of the main reasons for this is that the Federal Law on Limited Liability Companies regulates many aspects on facultative basis, allowing the legal entity’s bodies to resolve various issues at its discretion. This work is done internally at the company.

Charter capital^[36] is divided into participatory interests belonging to the LLC participants. The company is not liable for its participants' obligations. As a general rule, the participants are not liable for the company's obligations either.

Generally, a LLC is not obliged to publish its reports.

4.1.2.2.2. The Features of the Establishment of A Limited Liability Company

In accordance with Clause 1 of Article 89 of the CC of the RF, the LLC founders are obliged to sign an LLC foundation agreement in writing, which shall define some aspects of the company’s foundation.

This contract is not a constituent document of the LLC.

The term for the payment of shares in the charter capital (that has been established by the agreement) may not exceed 4 months. Within this period, the founders are obliged to pay the shares fully.

4.1.2.2.3. LLC Participants

Both individuals and legal entities can be participants to an LLC. The number of LLC participants shall not exceed 50. At the excess of this limit, the LLC must be transformed into a JSC. The LLC may have a single participant (a company having a single participant cannot appear as such a participant, according to Article 7 of the FL on Limited Liability Companies).

4.1.2.2.4. The Transfer of Participatory Interest in LLC’s Charter Capital

As a general rule, the transfer of an LLC’s participatory interest from one person to another is allowed. Upon alienation of the entire participatory interest, this person ceases to be the company's participant. In case a participatory interest is sold to a third party, the other participants of an LLC have the priority to buy the share or part of the share (the seller must first offer its share to the other participants). An LLC charter may include the necessity to obtain the consent of all participants for the alienation of a share. Furthermore, the charter may establish a ban on the shares' alienation.

4.1.2.2.5. LLC Profit Distribution Among the Participants

At the general meeting of an LLC, participants may decide to distribute the company's net profit among its participants quarterly, biannually, or annually. Distribution is made in proportion to the participant's interest in the charter capital. The company's charter may provide other proportions of profit distribution. The FL on Limited Liability Companies contains a list of circumstances under which profit distribution is prohibited.

4.1.2.2.6. Increase and Reduction of LLC Charter Capital

An increase of LLC charter capital may be implemented:

i) at the expense of the company’s assets (without the implementation of additional deposits),

ii) at the expense of LLC participants’ additional deposits,

iii) at the expense of the deposits of the persons entering the company as a participant, if it is not prohibited by the company’s charter.

A reduction of LLC charter capital is implemented by:

i) the reduction of the shares par value for all participants of the company,

ii) the redemption of the company's shares.

4.1.2.2.7. Contributions to the Company’s Assets

The general meeting of participants may oblige all of the participants of an LLC to make contributions to the company’s assets; these contributions do not change the sizes and par value of the participants’ shares in the charter capital (and do not increase the company's Charter Capital). Such contributions are made by all participants in proportion to their shares, unless otherwise stated in the charter.

4.1.2.2.8. LLC Management Bodies

LLC Management Bodies are:

i) The General Participants Meeting

The general participants meeting is the highest management body of an LLC. All of the company’s participants have the right to participate in it. During the general participants meeting, most of the important issues concerning the LLC’s activities can be addressed and resolved.

ii) Board of Directors (Supervisory Board)

The terms "board of directors" and "supervisory board" are synonyms. The formation of a board of directors (supervisory board) in an LLC is not obligatory.

The company's charter determines the competence of the board of directors (supervisory board), taking into consideration the Federal Law on Limited Liability Companies.

iii) A Sole Executive Body

The sole executive body manages the company's current activities. The general meeting of shareholders or the board of directors (supervisory board) elects a sole executive body, which shall be accountable to them.

iv) Executive Board

Forming an executive board is not obligatory for an LLC. The appointment of executive board members is within the competence of the general participants meeting or the board of directors (supervisory board). The chairman of this body is a person holding a position in the sole executive body.

v) An Audit Committee (Auditor)

Forming an audit committee is obligatory for a company which has more than 15 participants. The general participants meeting of the LLC appoints a member to the audit committee. The company’s audit committee (auditor) has the right to carry out inspections of company’s financial and economic activities, and has access to all documentation concerning a company’s activities at any time. The company’s audit committee (auditor) shall carry out an inspection of company’s annual reports and balance sheets, before their approval by the general meeting of participants of the company.

4.1.2.3. Joint Stock Company (JSC)

4.1.2.3.1. The Legal Nature of a JSC

The JSC is one of the most common organizational-legal forms of legal entities in Russia. Its charter capital^[37] is divided into shares belonging to the JSC’s participants. The company is not liable for the shareholder’s obligations. The shareholders are usually not liable for the company’s obligations either, except in a situation when they have not fully paid for their shares.

Public JSC, as well as a non-public JSC with more than 50 shareholders, are obliged to disclose information in accordance with the Federal Law on Joint Stock Companies.