Limited Liability Companies in Russia

Participants

A Limited Liability Company (LLC) may be established by one or more individuals or legal entities ("Participants"). A LLC may not have as its sole Participant another business entity consisting of a single person. If the number of Participants exceeds 50, the entity must be reorganized into an open joint stock company or a production cooperative within one year.

Participation Interests

The Participants own "participation interests" in the LLC. A participation interest in a LLC is not considered a security under current Russian law. Therefore, in contrast to the shares of a joint stock company, LLC participation interests do not need to be registered.

Participants may sell their participation interests to a third party, subject to a right of first refusal held by the other Participants to purchase them at the same price offered to the third party. Participants in a LLC also have the right to withdraw from the LLC and to be compensated for their participation interests.

Finally, a Participant (or group of Participants) holding a participation interest of 10% or more may demand the expulsion of any other Participant who grossly violates his obligations as a Participant, or who substantially hinders the LLC in its legitimate activities.

Rights of Participants

The Participants in a LLC have the right to:

• Participate in the management of the LLC in accordance with procedures established by the LLC Law and the LLC foundation documents (in Russia a "foundation agreement" is comparable to the US "Articles of Incorporation" that establish the company and a "charter" is comparable to the US "By-laws" that specify the rules of its governance);
• Obtain information concerning the activities of the LLC and have access to its accounting and other documents in accordance with procedures established by the LLC foundation documents;
• Participate in the distribution of profits;
• Sell or otherwise assign their participation interests in the LLC charter capital, or a part thereof, to one or more of the Participants in the LLC in accordance with the procedure established by the LLC Law and LLC charter;
• Withdraw from the LLC without first seeking the approval of the other Participants; and
• Receive a portion of the assets left after settlement with creditors in the event of the liquidation of the LLC.

The LLC Law grants Participants other rights as well. Beyond these statutory rights, additional rights may be granted to the Participants in the original LLC charter. Additional rights may also be granted after formation by a decision of the LLC's General Participants' Meeting but this requires the unanimous consent of all Participants. Additional rights granted to a particular Participant after formation are not transferrable and do not pass to the successor when a participation interest is sold or otherwise transferred.

Obligations of Participants

The Participants in a LLC are required to:

• Make contributions to the charter capital as specified in the LLC Law and LLC foundation documents (or in the resolution on the establishment of the LLC, where there is only one Participant in the LLC), and within the time periods specified in the LLC Law; and
• Keep confidential all information concerning the activities of the LLC.

The LLC Law imposes other obligations upon the Participants. Additional obligations may be set forth in the LLC charter and may also be imposed upon all Participants at a later time by a decision of the LLC's General Participants' Meeting, but unanimous consent is required.

If additional obligations are imposed by a decision of the LLC General Participants' Meeting on a particular LLC Participant, the decision requires a two-thirds majority of the total number of votes held by the LLC Participants. The affected Participants effectively have a veto because they must either vote in favor of the decision or consent to it in writing. Like rights added by this method, additional obligations do not pass to any party acquiring the affected Participant's ownership interest.

Charter Capital

The charter capital of a LLC consists of contributions made by its Participants. The initial charter capital may not be less than 100 times the statutory monthly minimum wage. Based upon the statutory monthly minimum wage in effect on January 1, 2007, this works out to 10,000 rubles.

At least 50% of the charter capital amount must be paid by the date of the LLC's registration, and the balance must be paid in full within the first year of its operation. Contributions may be made in cash or in-kind, and certain customs benefits may be available for in-kind contributions made by foreign investors. The charter capital may be increased only after the original charter capital has been paid in full.

Management Structure

The General Participants' Meeting is the highest governing body of a LLC, and almost all matters fall within its exclusive competence. Even if the LLC Participants choose to create a Board of Directors, the General Participants' Meeting may nonetheless only delegate a limited number of matters to the Board.

The General Participants' Meeting has exclusive rights to:

• Amend the charter;
• Amend the foundation agreement;
• Define the basic goals and directions of the LLC;
• Delegate to a commercial organization or to an individual entrepreneur the authority reserved to the LLC executive and approve the conditions of the agreements with such organizations or persons;
• Assign supplemental rights and duties to the Participants in the LLC;
• Approve the annual financial report and the distribution of profits;
• Alter the amount of the charter capital of the LLC;
• Approve the regulations governing the internal activities of the LLC; and
• Reorganize or liquidate the LLC, appoint a liquidation commission, and approve the liquidation balance sheet of the LLC.

Registration

Since 2002, the local bodies of the Federal Tax Service has been the authority that registers legal entities in Russia.

The following documents are required for registration:

• The application for the state registration of the new entity;
• The foundation agreement of the LLC (if the LLC has more than one founder/Participant);
• The protocol of the founders' meeting or, if the LLC has only one founder, the resolution of the founder on the establishment of the LLC;
• The Charter of the LLC;
• Power of Attorney issued by the founder for filing the application for the state registration of the LLC;
• The registration certificate, Certificate of Incorporation, an excerpt from the trade register, or certificate of good standing of the foreign Participant;
• The Charter (Articles of Association, By-laws) of the foreign Participant;
• Confirmation of payment of the state registration fee.

All documents from a foreign legal entity must be notarized and apostilled/legalized in the country of preparation. Any document supplied in a language other than Russian must be accompanied by a notarized Russian translation.