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December 2013
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RS From problem to solution Registering A Business

Registering A Business

December 2013

After the future entrepreneur has decided on the manner in which they will form their business – (i.e. personally or through an organization), and if through an organization, what kind exactly, at the time of business registration. The registration rules are not all that different from IP or from organizations of different forms. Therefore, we will base our example on the formation of an LLC.

(For information on how to choose the right form of business, read the June issue of Russian Survey)

The entire registration process can be conventionally divided into four steps. Let’s take a closer look at each of them.

First step – our address is neither house nor street...

Before filling out the documents for registration and determining who and where they will drift, it is necessary to resolve a more vital issue; namely, your organization’s official address, or as it is often called the organization’s legal address. Using this address will enable other organizations, entrepreneurs, and the ordinary citizen to contact your organization, if necessary. Therefore, choose carefully, before making your final decision – it should offer the convenience of receiving timely correspondence.

From a legal point of view, the address of the registered legal entity is considered the one address where there is a 'permanently operating executive body'. Or, to put it in simple terms, its Director, General- Director, etc. So, in practice, what is an acceptable 'official address'? It perfectly acceptable to use not only the founder's office address, but also, for example, the address of the leased premises if the lease agreement provides for the delivery of mail), as well as that of the founder's home address.

Anyone who has ever 'struggled', at least once, with registering a company, knows that there are many suggestions for 'purchasing the legal address' – the Internet is teeming with such offers; they are plastered on the poles of tax service offices, which is offering services to register your business; these services will be offered to you by various individuals on your way to the registry authorities. Before accepting similar offers, it is necessary to consider that such offers usually come with mass registration of various registered entities at the same legal address. This will mean dozens of companies registered to the same address.

In accordance with recent amendments made to the law on State registration, this will allow tax authorities to reject your business's state registration. But even if the business is successfully registered, the use of a 'mass registration address' may cause issues with tax authorities some time in the future. Tax inspectors consider all such organizations "by default" as one-day firms. This means that your customers will not be able to take the VAT deduction, or encounter issues taking into account VAT expenses for tax purposes, and close attention to your organization during any inspection is guaranteed.

Therefore, while registering your organization, and you decide to use a third-party address (for example, a business center address), take some time out to check whether the address is included in any mass registration database. And doing so is rather simple: The online Revenue Service website has a corresponding service, which you can find by going to: https://service.nalog.ru/addrfind.do

Second Step: Preparing Documents

The next step in registering your business will be to prepare all necessary documents. This step consists of two parts. The first includes documents on the business itself, and the second includes documents for the registration process. Let's begin with the second.

Filling out the Application

Not that long ago, filling out various statements necessary to register the organization was time-consuming, requiring care and skill. Therefore, it's no surprise: the forms, themselves, are complex, consisting of multiple pages, some of which, in some cases, should not be filled out, while in other cases they must be filled out several times.

For example, if a legal entity is created and its founders are all natural persons, filling out forms providing information about its founders - legal entities - is not explicitly required. Or, if the business has several founders (natural persons), information on each individual must be specified on a separate form. As a result, we have a stack of similar types of forms with different content, numbering, but designated as just one.

All these nuances should be taken into account in advance to properly number all the forms. It is not surprising then, that many people ask for help from specialized law firms, preferring to pay - saving time, nerves and money.

However, properly filling out applications has become much easier. The Revenue Service's website contains a special section, where you can download a program absolutely free of charge, which allows you to generate an application according to the rules. You can find the program to prepare an application for legal entity registration at the following address http://nalog.ru/el_usl/no_software/prog_ur/4195313/.

Future individual entrepreneurs can both download this program, and also fill out an application online directly from the Revenue Service website at: https://service.nalog.ru/zgreg/zayav-new.html?kind=ip. It should be noted that here, the service provides an opportunity to the entrepreneur to register on a so- called "turnkey" basis, (i.e. after completing all stages of filling out forms, and paying the state registration fee, it will be necessary to appear on the scheduled day and time of the inspection indicated during the application process, in order to obtain all necessary registration documents.

The service is not yet available for legal entities, therefore the generated package of documents need to be either printed and taken to the inspectorate's office, or signed and verified electronically, and emailed to the inspectorate's office. But in any case, the headache of correctly filling out all forms can now be avoided.

After an application is completed and printed out, don't hurry to sign it – it should be done in the presence of a notary. Going to the notary with only one statement application doesn't make sense; the notary will still require the production of the complete set of documents. Therefore, let us leave our prepared application alone and go to drafting a set of documents relating to the legal entity itself.

Preparing Founding Documents

In order to register an organization, the following documents are mandatory:

• Organisation Charter
• Decision on the organization's creation
• The document confirming the status of the founder if he/she is a foreign legal entity.

Let's see where they come from and how they are created.

Let's begin with the organization’s charter. Charter preparation is a rather complicated process, as the Charter is the main document regulating the organization’s activities. Therefore, while creating one, it is necessary to take into account the organization’s possible development. The legislation to the statute, also, imposes rigid requirements to the Charter. Therefore, it is best to entrust the drafting of the charter to a professional, and contact a legal or auditing firm. For example, the Moscow company ICLC is ready to provide similar service.

We would not recommend taking any templates samples posted online or reference systems. It would be better if the charter is made for your specific need, once you have defined the organization’s type and purpose, how and who will manage it, to what kind of business you plan to conduct, etc.

The charter is prepared in advance, as the founders will have to approve the charter simultaneously with the legal registration of their decision to create a company. It should be borne in mind, when registering the organization, it is necessary to transfer two original copies to the tax inspector. Therefore, at the time for approval, it will be necessary to print and staple two copies of the prepared charter.

The decision on the Creation of a Legal Entity – is, in fact, the main document which confirms the organization’s 'birth'. Depending on how many people are part of the 'decision', this document can be called either 'The decision of the participant' (if just one), or 'Protocol of the meeting participants' (if their are two or more). In any case, it is necessary to issue this document on paper, and certified with the signatures of all specified persons.

What exactly is necessary to write on this document? First, its official name – the Decision or the Protocol. Then, place and time of the decision or the meeting. And thirdly, are the personal data of the founder or founders (surname, name, middle name, if any, document data identifying the person, and place of residence).

Thereafter, we move on to the core of the issue. We specify the decision to create the organization and approve its Charter. Thus, the persons who have made the decision on the confirmation of the Charter should approve the Charter by their signatures in confirmation of this fact.

After the Charter has been approved, usually, the organization’s governing body is immediately elected as provided by the recently approved Charter. Respectively these decisions are also entered in the document indicating the organization’s creation.

And finally, if the company is created by one founder (Whether a natural person, or other organization), at the same time of making the decision to establish an organization, it is necessary to determine the size of its authorized capital, the order and terms of payment. If it is decided that the authorized capital will be paid by non-monetary assets, it is necessary to decide on the approval of the monetary value of assets contributed toward the authorized capital. These provisions are, usually, directly recorded in the decision on the organization’s creation.

The set of documents for registration (the one you will want to present to the tax inspector) includes the original copy of this decision. So our advice is to make several original copies of this decision (with 'living signatures').

Payment of Authorized Capital

Authorized Capital is a kind of minimum guarantee to ensure the rights of potential creditors. Thus, the law rather strictly regulates questions of payment of authorized capital, which in practice puts many beginners to the business world to a standstill.

Let's begin with what the law requires: At the time of the creation of the LLC, not less than half of the amount of the authorized capital, must be paid by its founders, at the time of state registration. Thus, the minimum authorized capital for LLC is also defined by the law is 10 thousand rubles.

How is the authorized capital formed in practice? As it was earlier specified in the section on the decision on organization creation, it is on this document that the founders fix the size of authorized capital. Another decision is also, whether it will include money or other property, and its monetary value.

It is important to remember that the law requires the involvement of an independent appraiser, only if the nominal value of the share paid by the non-monetary assets is more than 20 thousand rubles. It is best to refer to qualified appraisers for assessment services, for example the ICLC company. Thus, we find that when the minimum authorized capital is 10 thousand rubles or even twice as much, the founders themselves can estimate the share paid toward the property. If the authorized capital is paid in cash, it is not required to make an assessment of any property at all, regardless of the size of the authorized capital.

For payments of authorized capital in cash, it is necessary (even before company registration) to open a special savings account with the bank. This peculiarity is due to the fact that, the account passes to the organization’s property from the date of its registration. Accordingly, it is to this account, that the founder's deposit the money needed to pay the authorized capital. If it is decided that authorized capital will be paid with non-monetary assets, the property is transferred to the person elected as the organization’s director. The transfer is documented, and specified that the following property has been isolated and transferred to the governing body, and after the organization’s state registration has been completed, the property is transferred into its ownership.

Visiting the Notary

Only after the complete set of documents have been prepared, is it time to go to the notary to sign the application for the state registration. After the notary certifies the applicant's signature on the application, it is necessary to attach sheet A to it, to pay the state tax in the amount of 4,000 rubles. You may generate a receipt of the payment, online at the tax service website: https://service.nalog.ru/gp.do) at which time, the set of documents will be ready.

Third Step: Transferring Documents to Inspectorate's office

Thus, the prepared set of documents needs to be transferred to the tax inspectorate office, which is authorized to register the organizations. This may be the inspectorate office located within the founder's the residence, or a specialized inspectorate office (Such as Moscow and Petersburg).

You can deliver documents to the inspectorate not only in person, but also by e-mail. Accordingly, if you choose to go in person, the visiting applicant must present their passport (along with its legalized translation, if it is a foreign passport). If you send the documents by e-mail, add the notarized copy of the passport (all pages), and if necessary, it's legalized translation.

In case you decide to go in person, the inspector will verify the completeness and will visually examine the paperwork for errors, and subsequently issue a receipt indicating document type, time, and quantity of documents received. If you send documents by post, it is necessary to specify the list of contents, return receipt requested. These two documents record that the document has been transferred to the tax inspectorate. Although in this case, the inspectorate will send the applicant the receipt (also by post).

Fourth Step: Receiving the Registration Documents

If all documents which you transferred to inspectorate are issued correctly, within five working days you can visit again to registering authority to receive the set of documents confirming registration of your firm upon presentation of your receipt. Following documents will be given to you at inspectorate office:

• certificate of state registration of the legal entity
• one copy of the charter with the registering body;
• extract from the Unified State Register of Legal Entities;
• certificate of registration of Russian organization with the tax authority at the place of its location. The taxpayer identification number should be indicated in it - VAT code and Tax Registration Reason Code (KPP).

If you did not manage to come to the inspectorate office on the fifth day, the inspectors will send the registration documents by mail to the address specified in the application.

This completes the process of registering the organization. However, before you start doing business, new entrepreneurs should complete a few important transactions that give legal status to their company. For more information on that subject, please read our next issue of Russian Survey.

Alexey Kraynev,
Exclusively for Russian Survey

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