On 1 September 2014, some amendments to the Civil Code of the Russian Federation were entered into force that significantly changed the Russian Company Law. In particular, the changes concerned the classification of legal entities, which is caused the relevance of this article. According to the Russian Federation Civil Law, all legal entities, which division into commercial and non-commercial generally has remained unchanged, are now subdivided into two more types – corporate and unitary legal entities. The law provides a criterion for such division (item 23 of Art. 1 of the Federal Law № 99-FZ) which determines whether an incorporator of a legal entity has the right of participation (membership) in it and whether he forms its supreme body.
It is important to note that as a result of the reform both commercial and non-commercial corporate and unitary legal entities, may be founded only in such business forms provided by the Russian Federation legislation.
Corporations
Corporations (corporate legal entities) are legal entities with regard to which its incorporators (participants) have the corporate rights, the right of participation (membership) in it and also form its supreme body – the General meeting (in the cases provided by the law – the Congress, the Conference or other representative (collegial) body), in accordance with the requirements established by the law (item 1 of Art. 65.1 of the CC of the RF). As division of legal entities – that has been mentioned earlier – has remained unchanged, the new classification of legal entities (here – just corporate) looks as follows:
1) Commercial corporations include:
a) business entities: limited liability companies (LLC) and joint-stock companies (public and non-public JSC – are introduced the reform 2014);
b) economic partnerships (general and limited) – *means firms;
c) business partnerships;
d) producers’ cooperatives;
e) peasant farms.
2) Non-commercial corporations include:
a) consumers’ cooperatives;
b) associations (unions);
c) public organizations (political parties, trade unions, social movements and others);
d) real estate owner’s partnerships;
e) Cossack societies filed in the state register of Cossack societies of the Russian Federation;
f) native minorities communities of the Russian Federation.
Corporate member`s status
The allocation of corporations as a special type of legal entities has directly enshrined in the Civil Code the general rules concerning the status, namely – the rights and duties, both corporations and their participants (members, shareholders). This, in turn, has expanded the range of rights and opportunities of protection of interests not only business entities’ participants, but also the rights of members of any corporation (by affording them several rights, for example, to participate in the management of the business and affairs of the corporation, to receive information about its property status, the right to litigate the exclusion from the corporation, etc. (Art. 65.2 of the CC of the RF)). The list of rights of corporate members is not exhaustive and therefore, they may also have other rights provided by the law or enumerated in the articles of incorporation.
The so-termed "restoration of corporate control", that is, the restitution of the participation rights which were lost by corporate members against their will, is the new form of protection of valuable interests, that has appeared in arbitration practice and also received a legislative consolidation by virtue of reform 2014. This form of protection further ensures observance of the rights of the parties affected by various unlawful actions and abuses, such as: unjustified "writing-off" of shares, "corporate acquisitions" and others.
The members’ duties are enshrined in the list of item 3 of Art. 65.2 of the CC of the RF and as well as the list of members’ rights - is not restricted. The legislative consolidation of the duty of the corporate member to take part in the corporate decision-making, if his participation is indispensable for adoption of any decision, without which the continuation of the activities of the corporation is impossible, has become one of distinctive features of the reform 2014. This Russian legal innovation is introduced to prevent the situation of a "corporate deadlock" when none of the participants or group of participants are able to take any important decision due to the lack of necessary quorum.Plenum of the Russian Federation Supreme Court in the resolution from 6/23/2015 № 25, in particular, carries decisions on appointment of the Sole Executive Body or a member of the board of directors, and also on amending the articles of incorporation to such important decisions. However, it is interesting to note that the Civil Code does not contain any enforcement mechanisms to the performance of this duty and also does not impose on the party real responsibility for its failure.
Corporate administrating authorities
The new article 65.3 of the Civil Code is devoted to the corporate management organization; according to the article the supreme body of corporation is the General meeting. It possesses broad powers, which authorize the General meeting to: approve and amend the articles of incorporation, determine independently the areas of priority for the corporation’s activities, regulate the order of adoption to members of the corporation, form or abolish other corporate bodies, approve annual reports and financial accounts, make decisions on the establishment by the corporation other legal entities, corporate reorganization, dissolution and more.
The law is also established the rule, according to which, the Sole Executive Body, which may be both physical and legal entity, has to be formed in a corporation. The articles of incorporation, thus, provides the possibility of various options of the organization of corporate management in this case: firstly, when powers of the only Sole Executive Body are provided simultaneously to several persons; or, when there is a possibility of creation of several Sole Executive Bodies, which will operate independently from each other. In some cases, provided by the law, the Collegial Executive Body may be also formed in a corporation.
Speaking about the structure of corporate administrating authorities, it is important to mention one more collegial body – the Supervisory Board or other Board, operating along with all above-mentioned bodies and formed in certain cases, specified in the law or in the articles of incorporation. For example, in joint-stock companies, the Supervisory Board is the board of directors which jointly with an Audit Commission which is also a collegial body, handling with financing and operating activities of the society (item 1 of Art. 85 of the Federal law "On joint-stock companies" from 12/26/1995 № 208-FZ), controls the activities of executive bodies and exercises other functions entrusted to it by the law and the articles of incorporation.
Unitary legal entities
Unitary legal entities are legal entities in which its incorporators have the rights in rem on the organization’s property. However, incorporators do not become participants of these legal entities and do not acquire the rights of membership (par. 2 of item 1 of Art. 65.1 of the CC of the RF).The new classification of legal entities (here – just unitary) with the existing division into commercial and non-commercial looks as follows:
1) Commercial unitary organizations include: state and municipal unitary
enterprises.
It is important to mention that the unitary enterprise has no right of ownership to the property which is secured to it by the general owner. The property of a unitary enterprise is undivided and, accordingly, may not be distributed on deposits (interests, shares), including between employees of the company
(par. 1 of item 1 of Art. 113 of the CC of the RF).
2) Non-commercial unitary organizations include:
- funds;
- institutions (private, state and municipal);
- autonomous non-profit organizations;
- religious organizations;
- public companies (are also introduced the reform 2014 and in July 2016 also was adopted the Federal law from 03.07.2016 № 236-FZ "On public companies in the Russian Federation and on amendments to certain legislative acts of the Russian Federation") (further – the Law on public companies);
- government owned corporations (since October 2, 2016).
The abovementioned classification, according to some theorists, is not impeccable. For example, it is quite controversial an allocation of the religious organizations which have been previously recognised as a kind of public organizations in an independent entity type. As the actual giving priority to the specific legislation and internal regulations over the civil status of these legal entities does not allow to fix a legal status of the religious organizations as parties to a civil transaction.
The problem of settlement of the status of the public legal entity within civil law relationship which have been existed earlier is solved by adoption of the Law on public companies which considers features of the legal nature of the public companies and their legal status.
It should be noted that the above division of legal entities into unitary and corporate — is rather nominally, as, for example, in a unitary organization the founder, without having the formal membership nevertheless has unconditional right to administration. As an example, the rules on autonomous non-profit organization which incorporators are granted by the legislator rather significant rights and essential authority on management of the organization (Art. 123.25 of the CC of the RF) demonstrates a confusion of characteristics of the corporation and the unitary legal entity.
