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. Last Updated: 07/27/2016

Rules on Joint Ventures: How to Fill in the Gaps

Those of you who have just arrived in Moscow or who have found a good business opportunity may wonder whether companies yet exist in Russia and, if so, what form they take.

Regulations on the activities of joint stock companies exist, but there is no comprehensive company law. As a result, concepts which are familiar elsewhere, such as the fiduciary duty of directors, have not yet been developed and you may have to make good some of the gaps in the regulations, especially when negotiating an agreement with a partner.

There are two types of Russian joint stock company, the closed and the open. Both have limited liability and legal identities separate from those of their shareholders. The main difference between them is that a shareholder of a closed company needs the consent of the majority of the other shareholders to transfer shares, whereas shares in an open company can be freely bought and sold.

Either form of company can undertake any kind of activity - although government consent is necessary in the defense sector and the production of raw materials and minerals. The company is guaranteed freedom from state interference in its activities, provided they are legal.

A Russian company can be entirely foreign owned either as a subsidiary or by a group of foreign companies and/or individuals. In this case there is no need for a Russian director. A company can also be jointly owned by Russian and foreign shareholders in any proportions, and this, often referred to as a joint venture, is a popular vehicle for foreign investment.

The company charter sets out its objects and activities, its share and management structures and procedures for liquidation. However, the company's activities are not limited to those set out in its charter as Russian law provides that activities outside the scope of the charter, but within the law, are valid. As the general director has wide powers, this is one of the areas where investors may have to supplement the regulations and consider ways of introducing restrictions, such as setting limits on spending.

The general meeting of the shareholders is the highest authority in the company. It must have a quorum of 50 percent and decides most matters by a simple majority vote. Questions relating to changes in the company's charter and to re-organization or liquidation require a 75 percent majority and this should be borne in mind when partners are discussing their respective shareholdings.

These are the main attributes of a Russian joint stock company. Remember that you cannot rely on a safety net of Russian company law and you should be prepared to fill in the gaps.

Marcia Levy, an attorney at Norton Rose, has been practicing law in Moscow for two years.