Innovations in the Law and Law Enforcement of State Registration of Legal Entities and Sole Proprietors

The year 2015 turned out to be rich in amendments regarding procedures of state registration of legal entities and sole proprietors. First of all, it is related to the fact that in the last two years corporate law underwent significant alterations, and secondly, experience has proven that tax authorities declared war on reorganization through front parties.

Let’s review the most distinct innovations in more detail.

Registration of Model Articles of Association

Since 2014, all legal entities have been granted lawful right to submit for state registration model articles of association especially approved for such purposes by authorized bodies. But the legislator took a step further and allowed such parties, including economic companies, not only registering model articles of association, but also act under them1. Following amendments in the Civil Code, the applicable alterations were introduced in the Law on Registration. After approval, model articles of association of legal entities should be publicly displayed on the official website of the Federal Tax Service www.nalog.ru2.

As the result, after the approval of model forms of articles of association for legal entities with various legal forms, organizations may emerge without any articles of association at all. Information on the fact that the organization does not approve its own articles of association and uses the model form should be recorded in the Unified State Register of Legal Entities3.

Advantages and disadvantages of the model articles of association are listed in the following table:

It appears that the new option related to the use of model articles of association will be most relevant for small and micro-enterprises, and also for organizations, where the sole member and the sole executive body are the same person. Surely, if members (shareholders) have the task to separate rights and duties of each other as thoroughly as possible or set forth additional provisions and terms, application of model articles of association is unreasonable.

If members (shareholders) resolve to refuse the use of model articles of association, organization will need only to register its own articles of association instead of model articles4.

Since December 29, 2015 legal entities have notional opportunity to carry out their activity under model articles of association, however, as of the moment of preparation of this article forms of model articles of association were absent.

Address and Location of a Legal Entity

Revised Law on Registration separates terms of address and location of a legal entity. While no regulation of the Russian corporate law contains precise definitions of these terms, the implication is that the Law recognizes administrative and territorial unit, within which a certain registering body acts, as a location of a legal entity. In other words, as for legal entities registered in the territory of Moscow Interdistrict Inspectorate No. 46 of the Russian Federal Tax Service in Moscow is the registering body, “Moscow” will be required and sufficient concretization of the location. Similarly, the issue is resolved in cities of federal significance, such as St. Petersburg and Sevastopol. In other regions, except cities of federal significance, state registration of legal entities and sole proprietors is carried out by tax inspectorates in municipal districts, it means in this case concretization should be made up to administrative and territorial unit of municipal districts5.

As to address, according to the logic of the legislator, address should be understood as an aggregate of precise address details corresponding to the All-Russian Classifier of Addresses, which may be used for communication with a legal entity.

For the first time this terminological issue became challenging because the Law on Registration has separated lists of documents submitted at the introduction of amendments to address and location of a legal entity. Thus, if address of a legal entity is altered, but the old and the new addresses are within the same location (it means the registering body remains the same), the list of documents subject to submission at registration is limited by application in approved form and resolution of members (shareholders) on the introduction of amendments. But if at address alteration the location of a legal entity changes, it means organization leaves the area of responsibility of its registering body, then, first of all, since January 1, 2016 such registration should be carried out in two stages: first stage – submission of information on the resolution made regarding the alteration of location, and the second stage – submission of application on registration of a new location not later than within 20 days from the submission of the first package of information. Secondly, besides standard set of documents, at registration documents should be submitted confirming that legal entity or person entitled to act without power of attorney on behalf of a legal entity or member of a limited liability company owning more than fifty percent of the total number of votes of members of this company has the right to use real estate unit or its part located at the new address of a legal entity6.

Obviously, such significant complication of procedure for the transfer of organization to other registering body will not lead to the increase of those willing to undergo it. Almost certainly the main and the basic consequence of such amendments will be that business representatives will liquidate or sell their equities in operation companies, which do not own significant assets, and create new organizations in subjects of their interest instead of undergoing complex and long-term system of transfer of the registration case.

Time Period for State Registration

Since December 29, 2015 another amendment has been enacted setting aside registration of incorporation of legal entities from other types of registration. Unlike registration, for example, of amendments introduced to constituent documents and (or) to the Unified State Register of Legal Entities, which as previously is carried out within five business days, the time period for state registration of legal entities at their incorporation has been reduced to three business days7. The similar time period applies to state registration of sole proprietors8.

Submission of Documents for State Registration

Since January 1, 2016 it is formalized in legislation that submission of any documents for state registration is allowed, except previous means, by notary and by Internet, which includes through the unified portal of state and municipal services9. Thus, applicants have been granted great opportunity to submit documents to registering bodies even without use of electronic signature key, if they are registered on the portal of state services.

Transfer of Title to Equity and Pledge of Equity

Amendments have also addressed procedures for state registration of transfer of title to equity in legal entities and pledge of equity and have dealt with the composition of applicants at such type of registration. If until December 31, 2015 applicants had to be holders of applicable equities and at their alienation – sellers of equity, since January 1, 2016 two groups of people authorized to perform such actions have been defined. The ground for their separation is the fact of notary certification of the deal, on the basis of which registration is carried out. Thus, at transfer of title or pledge of equity subject to state registration the notary should be the applicant. If transfer of title or pledge of equity is not subject to notary certification, the applicant status remains with the owner (seller) of equity10.

Verification of Information Contained in the Unified State Register of Legal Entities

Since January 1, 2016 for the first time registering tax authorities have been authorized to settle disputes related to state registration. Such authority has been granted to them as part of verification of information contained in the Unified State Register of Legal Entities. In particular, if interested parties submit objections regarding the upcoming state registration of amendments in the articles of association of a legal entity or upcoming incorporation of data in the Unified State Register of Legal Entities, the registering body will be independently entitled to carry out the relevant examination and determine the authenticity or inaccuracy of submitted data by any of the following lawful means:

  • By examining documents and data maintained by the registering body, which includes objections of interested parties, and also documents and explanations submitted by the applicant;
  • By obtaining required explanations from parties, which may be aware of any circumstances relevant to examination;
  • By obtaining certificates and data on issues arising at examination;
  • By carrying out inspection of real estate units;
  • By engaging expert or specialist for participation in the examination11.

State registration cannot be carried out, if inaccuracy of information incorporated in the Unified State Register of Legal Entities is revealed12.

Except submission of objections to yet incomplete state registration, the law stipulates possibility of acknowledging already entered record as inaccurate. The record on acknowledgement of information as inaccurate may be entered on the basis of objection filed by individual, if information relates directly to such person. Thus, for example, if after the release of individual of duties of the sole executive body of legal entity information on such person remains on the Register, such person is entitled to refer to the registering body with application on the acknowledgement of such information as inaccurate. Though the registering body cannot delete inaccurate information from the Register, it may, upon obtaining required proof and carrying out examination, enter record on its inaccuracy13.

As is clear from the provided examples, in 2016 procedures for state registration of legal entities have been significantly complicated. Obviously, interest of the legislator focused on the attempt to remove from the market of state registration dishonest and front participants, and also to limit opportunities to submit inaccurate information during registration. How efficient this strategy and, mainly, these tools applied by the legislator are, we will find out this year.

  1. Paragraph 2 Article 52 of the Civil Code of the Russian Federation.
  2. Paragraph 10 Article 6 of Federal Law No. 129-FZ on State Registration of Legal Entities and Sole Proprietors dd. 08.08.2001.
  3. Subparagraph “e” paragraph 1 Article 5 of Federal Law No. 129-FZ on State Registration of Legal Entities and Sole Proprietors dd. 08.08.2001.
  4. Paragraph 2.1 Article 17 of Federal Law No. 129-FZ On State Registration of Legal Entities and Sole Proprietors dd. 08.08.2001.
  5. This conclusion is drawn from the regulation of paragraph 1 Article 18 of Federal Law No. 129-FZ On State Registration of Legal Entities and Sole Proprietors dd. 08.08.2001.
  6. Paragraph 6 Article 17 of Federal Law No. 129-FZ On State Registration of Legal Entities and Sole Proprietors dd. 08.08.2001.
  7. Paragraph 3 Article 13 of Federal Law No. 129-FZ On State Registration of Legal Entities and Sole Proprietors dd. 08.08.2001.
  8. Paragraph 3 Article 23 of Federal Law No. 129-FZ On State Registration of Legal Entities and Sole Proprietors dd. 08.08.2001.
  9. Paragraph 1 Article 9 of Federal Law No. 129-FZ On State Registration of Legal Entities and Sole Proprietors dd. 08.08.2001.
  10. Paragraph 1 Article 9 of Federal Law No. 129-FZ On State Registration of Legal Entities and Sole Proprietors dd. 08.08.2001.
  11. Paragraph 4.2 Article 9 of Federal Law No. 129-FZ On State Registration of Legal Entities and Sole Proprietors dd. 08.08.2001.
  12. Paragraph 4.4 Article 9 of Federal Law No. 129-FZ On State Registration of Legal Entities and Sole Proprietors dd. 08.08.2001.
  13. Paragraph 5 Article 11 of Federal Law No. 129-FZ On State Registration of Legal Entities and Sole Proprietors dd. 08.08.2001.
Olga Kuramshina

Ex-Leading Lawyer

Tax and Legal Practice

Korpus Prava (Russia)

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