Main legal forms of entrepreneurial activity
Individuals (without establishment of a legal entity) and legal entities may be involved into entrepreneurial activities:
a) As individual:
- Individual entrepreneurship
b) As legal entity:
- General partnership
- Limited partnership
- Limited Liability Company
- Joint-Stock Company
Both individuals and legal entities have equal rights in the process of implementing entrepreneurial activities.
Individual entrepreneurship - a type of entrepreneurial activities aimed at deriving commercial profits by individuals without establishment of a legal entity. These activities involve taking the risk and responsibility within the amount of properties.
A legal entity is a type of entity that is specifically established and officially registered in a manner prescribed by law, possesses its own property, is liable for its obligations to the extent of such property, and has the right to acquire and exercise, on its own behalf, proprietary and personal non-proprietary rights, to carry responsibilities, and to act in the capacity of complainant or defendant in a court of justice. Legal entities must have an independent balance sheet.
Legal entities may be established by individuals or legal entities, or by legal entities and individuals at the same time.
Legal entities are divided into two categories: for-profit and non-profit legal entities. All legal entities whose activity serves the primary purpose of earning profits are considered for-profit legal entities. Nonprofit legal entities, on the other hand, may be established as public associations, foundations and unions of legal entities, as well as in other forms. The primary purpose of these legal entities is not to earn profits, and earned profits are not distributed among their partners. Such organizations usually seek to achieve certain goals in the social, charity, cultural, education, science and management areas, to ensure the development of physical education and sports, to meet the cultural needs of the population, to protect human rights and to accomplish other objectives regarding public interests.
Business partnerships and companies are such for-profit organizations in which the authorized (partnership) capital is distributed among the founders (partners) of the organization. A business partnership may be established as a full partnership or a limited liability partnership. A business company may be established as a limited and additional liability company or as a joint-stock company.
Partners in a full partnership carry on business on behalf of the partnership and in compliance with the Articles of Incorporation, and are liable for the partnership's obligations to the extent of their property. In this type of entity, the sources of assets primarily consist of the partner's shares of ownership.
- A person may be a partner in no more than one full partnership.
- The company name of a full partnership must include the names of all of its partners and the words "full partnership", or the names of several partners followed by the words "and Partners".
- The profits and losses of a full partnership must be distributed among the partners in proportion to their shares of ownership, unless otherwise specified in the Articles of Incorporation.
- Partners in a full partnership are collectively liable for the obligations of the partnership to the extent of their property.
In a limited liability partnership, there are, in addition to those partners who carry on business on behalf of the partnership and are liable for the obligations of the partnership to the extent of their property (full partners), one or several partners whose risk with regard to the partnership's losses is limited to their share of ownership and who are not involved in the partnership's business operations; such partners are called limited (investing) partners.
- The name of a limited liability partnership must contain the name of at least one full partner and the words "limited liability partnership".
- The investment of funds by a limited partner must be documented with a certificate issued to them by the partnership.
- A limited partner has the right to obtain, in a manner prescribed by the Articles of Incorporation, a share of the profits proportional to their share of ownership, to access the partnership's annual reports, to quit the partnership at the end of a financial year and to withdraw, in a manner prescribed by the Articles of Incorporation, their share of ownership, or to transfer it to another investor or a third party.
A company founded by one or several persons, and whose authorized stock is divided into partnership interests in a manner indicated in the Articles of Incorporation, is called a Limited Liability Company. Partners in such company are not liable for its obligations and their risk with regard to losses incurred by the company is limited to the extent of their share of ownership.
- The number of partners in an LLC must not exceed the limit specified by the applicable laws and regulations. Otherwise, it needs to be transformed into a joint-stock company within one year, or, if the number of its partners is not reduced to the level specified by law before the expiration of this one-year period, it must be closed down in an action at law.
- The supreme authority of an LLC is its General Shareholders' Meeting. Current operations are managed by the company's executive body.
A company whose authorized stock is divided into a certain number of shares is called a Joint-Stock Company. A company in which the shares are only distributed among the founders and are sold by consent of the majority of the founders is called a Closed Joint-Stock Company. A company whose shares may be sold not only to the founders but also to third parties is called Open Joint-Stock Company. A joint-stock company is liable for its debts and the performance of its obligations to the extent of all its property. The shareholders of such company, on the other hand, may only be held liable to the extent of the amount of their shares.
A cooperative society is established as a voluntary membership-based organization involving cooperation by legal entities and individuals in order to meet the financial and other needs of its partners by means of combining their proprietary rights.
The basic principles of the establishment and operation of a cooperative society are as follows:
- Ensuring mutual aid and economic profitability for the partners of the cooperative society, coordinating their interests;
- Providing one vote for each partner, irrespective of the extent of their share of ownership (at the general meeting, where resolutions are adopted by a majority vote, every partner must have one vote);
- Increasing the commitment of each partner to greater performance, i.e. directly linking their profits to the outcome of business operations;
- Democratic adoption of business decisions.