A simplified procedure for documenting the termination of activity of small and medium-sized companies may be introduced from 1 july 2023

Pepeliaev Group advises that the State Duma has adopted in the first reading a draft law[1] that enables companies classified as small and medium-sized enterprises (“SMEs”) that meet a number of criteria to terminate their activity in accordance with a simplified procedure without undergoing a lengthy procedure of voluntary liquidation (the “Draft Law”).

The draft provides for the amendment of the Federal Law “On the state registration of legal entities and individual entrepreneurs”[2] (the “Law on the state registration”) and the Federal Law “On limited liability companies”[3] (the “Law on LLCs”).

What is proposed to be changed

It is proposed that the Law on state registration should be supplemented with new article 21.3 that regulates the special procedure for excluding from the Unified State Register of Legal Entities (the “Register”) legal entities classified as SMEs, specifically, excluding companies from the Register owing to a resolution of the founders/members to terminate the company’s activity.

In this case the only document that the company will need to submit to the registering authority to have the termination of its activity documented will be an application to exclude the company from the Register in accordance with a specific template[4] signed by its founders/members in the presence of a notary[5].

What companies will be able to use the new developments

According to the Draft Law a company will be able to terminate its activity in accordance with a simplified procedure if such company[6]:

1. Is included in the Unified Register of Small and Medium-sized Enterprises ;

2. Does not pay VAT or is exempt from calculating and paying it;

3. Does not have debts to creditors, in particular, outstanding taxes, levies or other mandatory payments;

4. Is not specified in the Register as having provided inaccurate data about itself;

5. Does not have ownership title to real estate and transport vehicles;

6. Is not being liquidated, reorganised or excluded from the Register in accordance with a decision of the registering authority;

7. No bankruptcy proceedings have been instigated with respect to such company.

All of the above conditions should be met in their entirety.

The procedure for excluding a company from the Register

If the registering authority determines that the legal entity on whose behalf an application has been submitted to be excluded from the Register meets all the above criteria, it will make a resolution on the upcoming exclusion of the company from the Register and will make a relevant entry to the Register. In other cases, no resolution is made on the upcoming exclusion.

The registering authority will have 5 business days for checking whether the legal entity meets the established criteria.

It has been proposed that a decision on the upcoming exclusion of the company from the Register and the data on the procedure and the deadlines for interested parties to submit objections to the upcoming exclusion should be published in the State Registration Bulletin. After publication, interested parties will have 3 months to submit objections to the exclusion of the company from the Register in accordance with template No. R38001[7]. The company’s founders/members within the same timeframe will be entitled to submit to the registering authority an application to terminate the procedure of exclusion from the Register.

if the registering authority receives no objections from the interested parties and no application to terminate the procedure from the founders/members of the legal entity, the registering authority will exclude the company from the Register if at the time when such an entry is made to the Register the company still meets all of the mandatory conditions.

Protecting the rights of the creditors of a company that has terminated its activity in accordance with a simplified procedure

The amendments enable interested parties to contest the exclusion of a legal entity from the Register that has taken place within a year from when they became aware or should have become aware of their rights being violated.

Taking into account that the data in the Register is open to the public, in practice, the time for contesting in such cases is as a rule assumed to start to run in any case not later than the date when the contested entry was made in the Register (in this case, the entry that the legal entity has been excluded from the Register).

Also, the Draft Law proposes amending article 3(3.1) of the Law on LLCs to allow secondary liability to be imposed on the members/founders of an LLC for the non-performance of the company’s obligations in all cases when the company is excluded from the Register, rather than only when it is excluded as inactive in accordance with a resolution of the registering authority, as the specified provision is worded at present.

The expected date for the amendments to come into force

Since the information systems of the Russian Federal Tax Service need to be overhauled for the amendments proposed by the draft law to be implemented, the draft law is planned to come into force on 1 July 2023.

What to think about and what to do

We recommend monitoring the status of the Draft Law and, if it is adopted, using in your activity the new opportunities of legally arranging the termination of the company that are within the scope of the new regulation.  

Moreover, if the amendments come into force, companies should monitor even more closely the status of their contracting parties to avoid missing the deadline for submitting objections to the upcoming exclusion from the Register of companies that have unperformed obligations.

Help from your adviser

Pepeliaev Group’s specialists are keeping up to date with the developments in corporate legislation (including potential ones) and boast wide experience in providing support within the scope of statutory corporate procedures. Pepeliaev Group's range of services includes providing legal support for various aspects of a company’s operations with regard to corporate legislation.

[1] Draft Federal Law No. 164662-8 “On amending the Federal Law “On the state registration of legal entities and individual entrepreneurs” and article 3 of the Federal Law “On limited liability companies” is available via the link: https://sozd.duma.gov.ru/bill/164662-8.

[2] Federal Law No. 129-FZ “On the state registration of legal entities and individual entrepreneurs” dated 8 August 2001.

[3] Federal Law No. 14-FZ “On limited liability companies” dated 8 February 1998.

[4] At present an exhaustive list of templates of documents to be submitted to the registering authority in the event of a state registration of legal entities is approved by Order No. ED-7-14/617@ of the Russian Federal Tax Service dated 31 August 2020.

[5] Similarly to the current regulation, the amendments provide that no notarisation will be required for the signatures of the applicants on an application if that application is submitted to the registering authority in the form of an electronic document signed by an enhanced qualified electronic signature of each of the applicants.

[7] Approved by Order No. MMV-7-14/72@ of the Russian Federal Tax Service dated 11 February 2016.

[8] As a rule, resolutions to liquidate the company and to form a liquidation commission (to appoint a liquidator) are made simultaneously, and may also be communicated to the registering authority in one application.