Setting up a business in Russia

For last twenty five years Russian legislation concerning business corporations’ registration has undergone tremendous changes. Last reform was carried out in 2014. It’s brought together Russian and American legislation in this branch.

Let’s see into options for foreign investors of setting up a business in Russia.

A fact of significant importance is that Russian legislation does not provide any restrictions for foreigners to establish commercial corporations.

LLC or JSC

There are two main forms of the corporations: limited liability companies and joint-stock companies.

The registration procedure consists of submitting a set of documents in tax department which issue a certificate of registration within 3 work days. Then the company establishes an account and obtains registration codes in the public pension fund, in the medical and the social insurance funds. For joint-stock companies it should be also necessary to register the primary security issue.

What are the features, pluses and minuses of these two corporate formations?

Limited liability company (Russian abbreviation – «OOO»)

• the company’s capital is divided in shares;
• to transfer his shares a shareholder must offer them first to other shareholders;
• shares could not be offered for purchase to the public;
• the number of shareholders cannot be more than fifty.

Advantages:

• easy and inexpensive to set up;
• easy and inexpensive to manage.

Disadvantages:

• no variety of ways for investment promotion;
• more difficult procedure of shares transfer (as compared to joint-stock companies);
• information about shareholders is publicly available.

Joint-stock company (Russian abbreviation – «AO»)

• the company’s capital is divided in stocks;
• law provides a wide range of securities joint-stock company can issue;
• joint-stock company can go public and then it would be named «public joint stock company» («PAO»);
• flexible corporate structure;
• transfer of stocks between stockholders and external investors without preliminary offer for other stockholders.

Advantages:

• stockholders can choose a corporate structure the most convenient for them;
• information about stockholders is not being published;
• diverse tools for investments;
• easy to attract investments;
• uncomplicated transfer of stocks.

Disadvantages:

• high charges for setting up;
• high charges and organizational expenses of following managing;
• for PAO – the burden of disclosure and remarkable fines for disclosure rules violation;
• complicated security issue procedure;
• obligatory annual audit.

Branch or representative office

It’s important to add that a foreign commercial company not only can establish a separate Russian commercial corporation but also can open a representative office or a branch in Russia.

A representative office rights reduce to defense of parent corporation interests. It represents the company in Russia.

A branch can exercise all or some parent company functions. But as the civil responsibility is hardly be applied to the branch the legislation provide a complicated and long-time procedure of branch official registration. Following state control of the branch would be also strict.

Choose the most acceptable option of entry into Russian market. Send us your questions. We respond and help you to run a business in Russia.

Our email: advice@vvcl.ru