Evgeny Gubin - Russian business law - the essentials

A founding agreement may provide the following models for the management of general partnership:

i) by all partners jointly (decision-making requires the consent of all partners),

ii) by each partner separately,

iii) by individual partners.

In accordance with Clause 3 of Article 73 of the CC of the RF, the participant of a general partnership has no right to execute transactions on its behalf, for the benefit of the third parties without the consent of the remaining participants if such transactions are similar to the subject of general partnership’s activities. The profit and losses are distributed among the partners in proportion to their contributions, unless otherwise specified by the founding agreement.

The partner has the right to transfer his share to the third party only with the consent of all partners.

In the case when a single participant remains in a partnership, the partnership is subject to liquidation, if the last partner does not transform the partnership into an economic company.

A limited partnership, along with the general partners, includes the investors (limited partners) therein, who do not participate in the management of the partnership, as well as in conducting its affairs, and bear the risk of the losses from the partnership's activities, within the limits of their contributions to the capital. Any individuals and legal entities can be investors to a limited partnership. Their number may not exceed 20.

Currently in the Russian legislation peasant (farmer) economy refers to:

i) the association of citizens (the citizens can conclude an agreement on the establishment of a peasant (farmer) economy, and carry out joint entrepreneurial activities without the formation of a legal entity),

ii) a legal entity.

The Federal Law on Peasant (Farmer) Economies determines a peasant (farmer) economy (or simply “farming”) solely as an association of citizens, and not as a legal entity. In accordance with Clause 1 of Article 1 of the aforementioned law, a peasant (farmer) economy includes “the citizens bound by the alliance and/or property, having property goods in common and jointly performing production and other economic activities (production, conversion, storage, transportation and implementation of agricultural products), based on their personal participation.” At the same time, the norms intended for the profit organizations are applied to the peasant economy, without the formation of a legal entity.

In accordance with Article 6 of the Federal Law on Peasant (Farmer) Economies, the property of the peasant economy may include a land plot, farm improvements, ameliorative and other constructions, productive and working cattle, birds, agricultural and other machinery and the equipment, vehicles, stock, and other property, necessary for the implementation of the economy’s activities. The property of the economy belongs to its members on the right of joint ownership, unless otherwise provided by an agreement between them. The shares of the economy’s members, in terms of share property, are established by an agreement between the economy members. Fruits, production, and incomes gained by the economy as a result of its property's use are considered as common property of all members.

The CC of the RF establishes that the persons who have concluded an economy founding agreement have the right to create a legal entity. The property of such an economy is determined by the right to ownership. Members bear a subsidiary liability for the obligations of the economy.

The peasant economy is a highly unpopular form of entrepreneurial activities in Russia, due to the personal liability of its participants and undeveloped legislation.

An industrial cooperative is a legal entity created by its participants, for joint industrial and other economic activities, based on their personal labor and other participation. The participants of industrial cooperatives contribute shares to the organization's property. The number of participants cannot be less than five.

The profits of the industrial cooperative are divided among its participants based on the labor participation of each of them in the activities of the organization. The law and the charter can provide another order for profit division. Industrial cooperative members bear subsidiary liability for the obligations of the cooperative, in accordance with the Federal Law on Industrial Cooperatives.

The industrial cooperative is also an unpopular organizational-legal form of legal entity in Russia due to personal liability of its participants, and the need for their labor participation in the affairs of the legal entity.

The state and municipal unitary enterprises (or simply “the unitary enterprises”) are legal entities, which may be founded only by a state [40] In this case, both the Russian Federation and its subjects are considered as a state. or the municipalities. Their property is respectively in a state or municipal ownership. The unitary enterprises have special rights to such property (see below).

There are two types of unitary enterprises:

i) a state enterprise

A state enterprise has the economic management rights of the property assigned to it. Generally, the right to economic management grants the state enterprise with an opportunity to independently dispose of the movable property. For the disposal of real estate, the consent of the owner shall be obtained (state or municipality).

ii) a treasury enterprise

A treasury enterprise has the operational management rights of the property assigned to it. This means that a treasury enterprise must obtain the owner’s consent for the disposition of any property. The production made by the treasury enterprise is an exception (it can independently dispose of it, unless otherwise provided by the legal acts).

The legal capacity of unitary enterprises is limited to the purposes of the activities stated in their charters.

Unitary enterprises are created mainly for rendering services to the population in those spheres where the activities of individual entrepreneurs are inadmissible or impossible (for example, public transportation, the production of goods being important for the state and society, etc.).

A minimum amount of charter capital for non-profit organizations is not established, except for those organizations whose charter provides for a possibility of exercising activities which may generate income. The minimum amount of the charter capital for this kind of legal entity is 10,000 rubles (Clause 5 of Article 50 of the CC of the RF). In any case, private institutions have no restrictions set by the law on the size of the charter capital.

i) A consumer cooperative is a membership-based, voluntary association of citizens and legal entities, aimed at satisfying their material and other needs, being carried out by way of assembling their share contributions.

ii) A public organization is a voluntary association of citizens, who have united in the order stipulated by law on the basis of common interests, for the purposes of satisfying spiritual or other non-material needs, representing and protecting common interests and to achieve other purposes, which are not contradictory to the law.