Russian business law: the essentials. Отсутствует
and redemption of fractional shares. This decision was related to the complaints of citizens and the “Cadet Establishment” company, and as per the inquiry of Oktyaberski District Court of the city of Penza, specified the following:
The right to free use of one’s abilities and property for entrepreneurial and other economic activities, not forbidden by law, serves as a basis for constitutional legal status of the participants of business companies, in particular of shareholders of joint stock companies being legal entities, as well as natural persons, including those who are not entrepreneurs, and who exercise their rights through holding stocks, certifying the rights to obligation of its owners, towards the joint stock company.
Proceeding from the aforementioned position of the Constitutional Court of the Russian Federation, the activities of shareholders shall be recognized as entrepreneurial.
1.2. The Right to Engagement in Entrepreneurial Activities
Natural persons (people) and legal entities (organizations) can be engaged in entrepreneurial activities in Russia.
1.2.1. Natural Persons
Another name given to natural persons in Russian law is “citizens.” One should take into account that in civil and business legislation the word «citizens» means all "natural persons," and not only the citizens of the Russian Federation. While referring to citizens of Russia, one shall specifically indicate this, by saying "citizens of the Russian Federation." The word «people» in the civil and business legislation is not used.
Every person can be engaged in entrepreneurial activities in Russia. Such right is fixed in the Constitution of the RF under Clause 1 of Article 34.
It is important to note that there are exceptions to this rule. The primary exceptions are related to the legal capacity of citizens, e.g. the ability of citizens to acquire and exercise civil rights by their actions, to create civil duties for themselves and perform those duties. The legal capacity of citizens is defined by the CC of the RF. As a general rule, citizens gain full legal capacity at 18 years of age. Before reaching this age, citizens cannot independently exercise most transactions.
1.2.2. Legal Entities
Profit organizations[25] have the right to be engaged in entrepreneurial activities. Non-Profit organizations may conduct income generating activities, as long as this is established in their charters, and only to the extent that this serves the purposes for which they have been established, and corresponds to such purposes (Clause 4 of Article 50 of the CC of the RF).
1.2.3. Participation of the Russian Federation, its subjects and Municipalities in the Civil Legal Relations
State and municipal organs (being expressly authorized), participate in civil legal relations on behalf of the Russian Federation, its subjects, and the municipalities. State authorities can be legal entities (see, for instance, clause 15 of the Rules on the Ministry of Justice of the Russian Federation, approved by Decree No. 1313 of the Russian President, dated October 13, 2004).
The Russian Federation, its subjects, and municipalities do not exercise entrepreneurial activities.
2. Individual Entrepreneurs
2.1. Registration as an Individual Entrepreneur
The citizen conducting entrepreneurial activities must be registered as an individual entrepreneur (Clause 1 of Article 23 of the CC of the RF). The registration procedure is regulated by the Federal Law on Registration. The Federal Tax Service (hereinafter FTS) of Russia is the body carrying out the state registration of individual entrepreneurs. For the purposes of being registered, the citizen needs to inform the FTS of Russia of his/her place of residence (Clause 3 of Article 8 of the Federal Law on Registration). The set of documents required for submission to the territorial body of the FTS of Russia, is indicated in Clause 1 of Article 22.1 of the Federal Law on Registration.
The absence of state registration shall result in administrative or criminal liability for illegal entrepreneurship. Moreover, despite the absence of registration, entrepreneurial activities of the citizen can be regulated by the norms of the CC of the RF. These norms are also applicable to individual entrepreneurs and legal entities who are already registered (Clause 4 of Article 23 of the CC of the RF).
2.2. Status of an Individual Entrepreneur
The activities of individual entrepreneurs are regulated by the same norms which establish rights and duties for commercial organizations. A possible exception is in a case when the law states otherwise, or based on the nature of the individual entrepreneur.
2.3. The Responsibility of an Individual Entrepreneur
The individual entrepreneur is liable for his obligations with all of his/her property (Article 24 of the CC of the RF). In other words, for the repayment of the debt of the individual entrepreneur, anything belonging to him/her may be levied to repay the debt. An exception to this rule is contained in Article 446 of the Civil Procedure Code of the RF. The levy cannot be executed on certain property owned by the citizen, particularly:
i) living premises, if it is the only suitable permanent residence for the citizen and the members of his family for residing together (if such premises are not objects of mortgage);
ii) the land plot which such living premises are situated on;
iii) the objects of habitual household furniture and utensils, and items of personal use (except for jewelry and other items of luxury);
iv) the property necessary for professional occupation of the citizen being the debtor, except for items which cost 10,000 rubles or more;
v) foodstuffs and money to the total sum of not less than the living wage (around 10,000 rubles).
2.4. Employees of an Individual Entrepreneur
The individual entrepreneur has the right to hire employees as per the labor contracts. Features of the legal regulation of work of the employees hired by the individual entrepreneur are established by Chapter 48 of the Labor Code of the RF.
3. General Provisions on Legal Entities
3.1. Classification of Legal Entities
Legal entities can only be created in those organizational and legal forms which are listed in the CC of the RF. State corporations and state companies, which are not mentioned in the CC of the RF, are an exception to this rule.[26] In total, 22 organizational and legal forms of legal entities exist in Russia.
All legal entities are divided into:
i) profit and non-profit organizations;
ii) corporations and unitary legal entities.
All types of legal entities can be schematically displayed as followes:
Moreover, there is one more organizational-legal form – advocacy formations (being legal entities). Legal entities of this type are non-profit organizations, however in the CC of the RF, they are not assigned to either corporations or to unitary organizations. Obviously, this is an omission of the legislator. At the same time, the analysis of the legislation allows the claim that Bar Associations (variety of formations of advocates which are legal entities) are referred to corporations.
3.2. Profit Organizations and Non-Profit Organizations
There are 6 types of profit organizations and 16 types of non-profit organizations in Russia (see above).
3.2.1. Legal Status of Profit Organizations and Non-Profit Organizations
Organizations, which activities’ main purpose is to generate profit, are considered as profit organizations. Non-profit organizations can be created for social, charitable, cultural, educational, scientific, and managerial purposes, for the purposes of the health of citizens, the development of physical culture and sports,