Establish a business

Legal structures for starting a business in Russia

Investors often face problems when choosing among legal structures for their business in Russia. Below, comments are provided on the following options:

  • Direct sales;
  • Distributorship contract;
  • Representative office or branch;
  • Russian subsidiary.

An FLE can choose to establish a presence in Russia through a representative office (RO) or branch. An RO or a branch is not a Russian legal entity, but is a legal part of the FLE, and, therefore, the head office bears full responsibility for the obligations and actions of the RO or branch.

An RO is authorized to conduct certain “preparatory and auxiliary” activities for its head office. A branch, on the other hand, is able to conduct all activities that the head office itself performs, including the execution ofsales contracts. Depending on the exact scope and nature of activities, both ROs and branches have the right to create a taxable presence in Russia for their headquarter company.

An FLE can choose to establish a presence in Russia through a Russian subsidiary. The most common business structures in Russia are Limited Liability Companies (LLC) and Joint Stock Companies (JSC). In an LLC (Russian abbreviation – ООО), the participation units attributable to shareholders (participants) are not considered as securities under Russian securities legislation. Shares in a JSC are considered to be securities and are subject to registration with the Federal Financial Markets Services. A JSC can be either ‘open’ (OJSC), meaning publicly held (Russian abbreviation – OAO), or ‘closed’ (CJSC), meaning privately held (Russian abbreviation – ZAO).

Foreign companies often use LLCs to conduct wholly-owned businesses in Russia. The LLC law provides for many similar provisions to those in the JSC Law. However, there are certain distinctions. Generally, one participant (individual orlegal entity), has the right to establish an LLC or JSC. However, another solely owned legal entity cannot establish an LLC or JSC as a one-man company (i.e. 100 percent owned).

 

(Based on the report of KPMG IN RUSSIA AND THE CIS “Doing Business in Russia: Your roadmap to successful investments. 2013.”)