Foreign entrepreneurs wanting to do business in Russia have many decisions to make, including whether to simply open a branch office in Russia or to establish a legal business entity. If a Russian legal entity is the best business decision, you will then need to decide among several business structures, including a limited liability company and a joint stock company. The attorneys and business advisors at Jus Privatum can help you make these difficult decisions, and, once you have committed to a plan, can help you set up your management structure. The management structure you must set up will depend upon the type of company you are establishing.
Management Structure of a Limited Liability Company
A limited liability company (LLC) can be established by one or more individuals or legal entities who are known as participants. The number of participants in an LLC cannot exceed 50. An LLC may not have as its sole participant another business entity consisting of a single person. The liability of each participant is limited to the amount of his or her share in the charter capital; thus the name “limited liability.” In other words, the participants are protected from personal liability for business debts or claims.
Participants in an LLC have the right to the following actions:
- To participate in the management of the LLC in accordance with procedures established by their foundation documents (articles of incorporation) and corporate charter (bylaws).
- To have access to accounting and other documents in accordance with procedures established by the LLC foundation documents.
- To participate in the distribution of profits.
- To sell or otherwise assign all or part of their participation interests in the LLC charter capital to one or more of the other participants.
- To withdraw from the LLC without first seeking the approval of the other participants.
- To receive a portion of the assets left after settlement with creditors in the event of the liquidation of the LLC.
- The participants may conclude a participants’ agreement to regulate how their rights are exercised.
LLC participants may choose to appoint a board of directors, but the general participants’ meeting will be the highest governing body of the LLC. The participants may delegate a limited number of powers to the board but will remain responsible for almost all significant matters. The participants may also appoint an executive body, which may be an individual or a collegial body, to manage the day-to-day running of the company. The executive answers directly to the participants.
Management Structure of a Joint Stock Company
A joint stock company (JSC) is a company whose authorized capital is divided into a definite number of shares. The owners of the JSC are known as shareholders and do not bear personal liability for its obligations.
In Russia, JSCs can be either public or non-public. A public JSC can have its stock publicly traded, but must conform to stricter government regulations regarding its management structure, shareholders, and reporting obligations. A non-public JSC cannot sell its stock publicly but enjoys more flexibility in terms of its corporate structure and operations.
Whether public or private, a JSC’s highest management body is the general meeting of shareholders, which must be held at least once a year. It must also have an executive body, which may be an individual director or a collegial body, to carry out day-to-day operations and report to the board of directors and the general meeting of shareholders. A JSC must also undergo a professional audit of its annual financial reports every year. A public JSC is required to appoint a board of directors consisting of at least five members, as well.
The Russian law on companies is flexible enough to vary the management structure of a Russian subsidiary in accordance with the special needs of our clients:
- The participants or shareholders may sign agreements to stipulate special rules for the appointment of board members or directors (including rotation of directors), to agree with the option-call for the acquisition of shares in certain cases, or to stipulate rules for distributing profits among the participants or shareholders.
- Both LLC and JSC organizations can any time appoint a new director or act to limit the director’s powers. Still, the general director of an LLC or JSC can represent the company solely. There are different instruments for limiting a general director’s powers and imposing liability measures for her or his actions. These measures allow foreign investors to coordinate compliance of the management structure of a Russian subsidiary with its corporate governance rules.
- The foreign investor is also given leeway with setting up internal or external audits of the LLC or JSC. The participants or shareholders may appoint an internal individual or a collective auditor (a reviser or revisions committee) and stipulate internal audit procedures. The audit should be performed at least once a year, but the foreign investor is able to set additional requirements. The external audit can be organized at any time upon the request of a shareholders’ or participants’ meeting or board decision.
- The foreign investor can use multiple internal regulations—including regulations recommended by the respective government authorities—in order to set up rules for confidentiality and information technology security, to establish labor procedures, to specify the obligations of certain departments of the company and its officials, to impose anti-bribery and anti-money-laundering provisions, etc.
Jus Privatum Can Be Your Business Partner in Russia
The corporate attorneys at Jus Privatum will assist you in implementing your business plan from day one. Once the initial steps have been taken and the proper documents have been filed, our legal team can advise participants, shareholders, boards of directors, or executives on their obligations and entitlements and represent them in any legal action taken against the company. Even if you didn’t work with us to establish your business in Russia, we can step in whenever you need us. Use the contact link on this page to get in touch with us.