Easing procedures of company registrations - what does the future hold?

ranking 16/11/2016

In the past years the Russian authorities have made various efforts to simplify the procedures and rules which govern the registration of legal entities and sole entrepreneurs. The significance of these efforts were not lost on the World Bank “Doing Business” rankings who adjusted Russia’s rankings in the “Ease of Doing Business” from the 51st to 40th place. In the category “Starting a Business” the ranking was reduced from to 41st to 9th. This is a significant improvement from previous years.

Notwithstanding these positive observations, the process of company registrations remains complicated. The following are barriers preventing a fast track registration:

  • Choosing of a company name;
  • Selecting of a correct activity type according to the activity classification codes;
  • Searching for a legal address;
  • Choosing an optimal tax structure;
  • Selecting appropriate definitions of business activities and their correct reflection in the company’s memorandum of incorporation;
  • Notarial certification of documents;
  • Filing of registration documents.

Registration documents which are prepared incorrectly may lead to a rejection by the Federal Tax Service – official body in charge for company registrations. Registration fees are non-refundable thus increasing the cost of the overall registration process and the overall time required. To avoid such delays it is advisable to use the services of specialized companies.

Compliance: To prevent fraudulent activities the Federal Tax Service of Russia has sent instructions to its regional offices requiring them to verify the information filed in the Unified State Register of Legal Entities (EGRUL). Particularly for legal entities registered after 01.08.2016 and where the following questionable features are identified:

  • CEO of the legal entity is also CEO in over than 5 additional legal entities;
  • Shareholders of legal entity are also shareholders in over other 10 legal entities;
  • The registered address of the legal entity is also the registered address of more than 10 legal entities;
  • CEO is a disqualified person.

A pilot scheme designed to simplify the procedures of business registrations by Russian citizens was launched on November 1, 2016. Two of the biggest Russian banks Sberbank and VTB are assuming the registration functions. Future entrepreneurs are not obligated to go to the local registration bodies - it is enough to apply to one of these banks where they are clients. They may contact the bank distantly or visit the bank’s office to register as individual entrepreneur or as an LLC with a sole shareholder. It is sufficient to fill out an application, for example, on foundation of a Limited Liability Company. The applicants may receive the digital signature, which will be affixed on the application form in case of remote applications. Thereafter after the bank will be responsible for security issues and dealing with registration and tax body without the client’s participation.

The pilot scheme will be operational until 2017. If successful the Russian authorities will assign more banks to extend the initiative nationwide.