4.1.2.3.2. The Features of the Establishment of a JSC

In accordance with the Clause 1 of Article 98 of the CC of the RF, founders of a JSC are obliged to execute a contract among themselves upon the founding a JSC, which shall define some aspects of the company’s creation. Such a contract must be concluded in writing.

This contract is not a constituent document of the JSC.

4.1.2.3.3. The Shareholders

Both individuals and legal entities may be JSC participants. The JSC may have a single shareholder (another company having a single participant cannot appear as such a shareholder, in accordance with Clause 6 of Article 98 of the CC of the RF).

4.1.2.3.4. The Shares

A public company has the right to allocate shares, and issue securities which are convertible to shares, through open subscription. A non-public company does not have the right to offer (to an unlimited group of persons) such securities for acquisition.

A non-public company may provide for in its charter the pre-emptive rights of the shareholders to the acquisition of shares being alienated by another shareholder (on paid transactions). Additionally, the charter may include a requirement to obtain the consent of stockholders for the alienation of the shares.

The JSC has the right to allocate several types of shares, as well as special types such as preferred shares. The JSC charter specifies the dividend amount and/or the cost paid, in the event of a company’s liquidation of preferred shares. The preferred shares do not grant the right to vote at the general shareholders’ meeting. An exception to this rule is for meetings when certain issues are being considered, such as making amendments and additions to the company's charter, limiting the rights of the preferred share owners, as well as other issues.

4.1.2.3.5. The Payment of Dividends

The general shareholders’ meeting may decide to pay dividends to the shareholders on a quarterly, biannually, or annual basis.

4.1.2.3.6. The Increase and the Reduction of JSC Charter Capital

The increase of charter capital may be implemented:

i) by increasing the share’s par value, or

ii) by issuing additional shares.

A reduction of the charter capital is implemented by:

i) the reduction of the share’s par value, or

ii) the acquisition of a part of the shares, with the purpose of reducing their total number.

4.1.2.3.7. JSC Management Bodies

JSC management bodies are:

i) The General Shareholders’ Meeting

The general shareholders’ meeting is the highest management body of a JSC. All shareholders have the right to participate in it. The most important issues of the JSC’s activities are addressed by the general shareholders’ meeting.

ii) Board of Directors (supervisory board).

Forming a board of directors is not obligatory for a JSC, which has less than 50 shareholders with voting shares. The general shareholders’ meeting elects the members of the board of directors (supervisory board) by a cumulative vote. The responsibilities of a company’s board of directors (supervisory board) includes the resolution of issues of the general management of company’s activities, except for the issues that federal law assigns to the responsibility of the general meeting of shareholders.

iii) A Sole Executive Body

The sole executive body manages the company’s current activities. The general shareholders’ meeting or the board of directors (supervisory board) elect the sole executive body, which is accountable to them.

iv) Executive Board

The forming of a executive board is not obligatory for a JSC. If a executive board has been formed, it shall manage the current activities of the JSC together with the sole executive body. The general shareholders’ meeting or the board of directors (supervisory board) elect the executive board, which is accountable to them.

v) An Audit Committee

The general meeting of shareholders elects an audit committee. It controls the company’s financial-economic activities.

4.1.3. Economic Partnership

There are two types of economic partnerships in Russia:

i) general partnerships,^[38]

ii) limited partnerships (special partnership)

Only individual entrepreneurs and profit organizations can be participants (partners) of the partnerships. The partners carry out entrepreneurial activities on behalf of the partnership.

The participants jointly bear subsidiary liability for the obligations of the partnership. The person can be a participant of only one general partnership. Management of the general partnership’s activities is carried out with the consensus of all partners, unless otherwise provided by the founding agreement. Due to the aforementioned features, Russian entrepreneurs rarely create economic partnerships.

A founding agreement may provide the following models for the management of general partnership:

i) by all partners jointly (decision-making requires the consent of all partners),

ii) by each partner separately,

iii) by individual partners.

In accordance with Clause 3 of Article 73 of the CC of the RF, the participant of a general partnership has no right to execute transactions on its behalf, for the benefit of the third parties without the consent of the remaining participants if such transactions are similar to the subject of general partnership’s activities. The profit and losses are distributed among the partners in proportion to their contributions, unless otherwise specified by the founding agreement.

The partner has the right to transfer his share to the third party only with the consent of all partners.

In the case when a single participant remains in a partnership, the partnership is subject to liquidation, if the last partner does not transform the partnership into an economic company.

4.1.3.1. Limited Partnership

A limited partnership, along with the general partners, includes the investors (limited partners) therein, who do not participate in the management of the partnership, as well as in conducting its affairs, and bear the risk of the losses from the partnership's activities, within the limits of their contributions to the capital. Any individuals and legal entities can be investors to a limited partnership. Their number may not exceed 20.

4.1.4. Peasant (Farmer) Economies^[39]

Currently in the Russian legislation peasant (farmer) economy refers to:

i) the association of citizens (the citizens can conclude an agreement on the establishment of a peasant (farmer) economy, and carry out joint entrepreneurial activities without the formation of a legal entity),

ii) a legal entity.

4.1.4.1. The Peasant (Farmer) Economy as an Association of Citizens

The Federal Law on Peasant (Farmer) Economies determines a peasant (farmer) economy (or simply “farming”) solely as an association of citizens, and not as a legal entity. In accordance with Clause 1 of Article 1 of the aforementioned law, a peasant (farmer) economy includes “the citizens bound by the alliance and/or property, having property goods in common and jointly performing production and other economic activities (production, conversion, storage, transportation and implementation of agricultural products), based on their personal participation.” At the same time, the norms intended for the profit organizations are applied to the peasant economy, without the formation of a legal entity.

In accordance with Article 6 of the Federal Law on Peasant (Farmer) Economies, the property of the peasant economy may include a land plot, farm improvements, ameliorative and other constructions, productive and working cattle, birds, agricultural and other machinery and the equipment, vehicles, stock, and other property, necessary for the implementation of the economy’s activities. The property of the economy belongs to its members on the right of joint ownership, unless otherwise provided by an agreement between them. The shares of the economy’s members, in terms of share property, are established by an agreement between the economy members. Fruits, production, and incomes gained by the economy as a result of its property's use are considered as common property of all members.

4.1.4.2. The Peasant (Farmer) Economy as a Legal Entity

The CC of the RF establishes that the persons who have concluded an economy founding agreement have the right to create a legal entity. The property of such an economy is determined by the right to ownership. Members bear a subsidiary liability for the obligations of the economy.

The peasant economy is a highly unpopular form of entrepreneurial activities in Russia, due to the personal liability of its participants and undeveloped legislation.

4.1.5. Industrial Cooperative

An industrial cooperative is a legal entity created by its participants, for joint industrial and other economic activities, based on their personal labor and other participation. The participants of industrial cooperatives contribute shares to the organization's property. The number of participants cannot be less than five.

The profits of the industrial cooperative are divided among its participants based on the labor participation of each of them in the activities of the organization. The law and the charter can provide another order for profit division. Industrial cooperative members bear subsidiary liability for the obligations of the cooperative, in accordance with the Federal Law on Industrial Cooperatives.

The industrial cooperative is also an unpopular organizational-legal form of legal entity in Russia due to personal liability of its participants, and the need for their labor participation in the affairs of the legal entity.

4.2. The State and Municipal Unitary Enterprises

The state and municipal unitary enterprises (or simply “the unitary enterprises”) are legal entities, which may be founded only by a state^[40] or the municipalities. Their property is respectively in a state or municipal ownership. The unitary enterprises have special rights to such property (see below).

There are two types of unitary enterprises:

i) a state enterprise