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Limited Liability Companies In Disarray Over Registration Deadline

It appears unlikely that businesses will manage to get through the re-registration process by January 1.

Four months remain until the deadline for Limited Liability Companies (OOOs) to re-register with the government. According to market-watchers and deputies of the State Duma, a panic has arisen in the market, albeit a slight one. Organizations attempting to navigate through the re-registration process are reporting that the tax departments are in complete disarray. Documents are frequently being rejected since the new application forms, developed by the tax authorities to replace the old forms, have not yet been finalized. OOOs are currently the most common form of business in Russia and account for up to 90% of commercial organizations registered in Russia.. Taking into account the large number of such firms, it is apparent that not all will be able to get through the re-registration process before the deadline. As a result of this, beginning January 2010, the Federal Tax Service, Office of Public Prosecutor, and Central Bank will have the right to take these companies to court at any time in order to force their liquidation.

Duma deputies are quite certain that the time period for re-processing documents will be extended until January 1, 2011. Experts and organizations that have gone through the re-registration process think that panicking is unnecessary.

Legal representatives have pointed out that problems are occurring mainly because of the fact that the re-registration procedure has not been finalized and appropriate recommendations regarding how to carry out the re-registration process, especially for the tax authorities, have still not been issued.

There have been instances, such as in one regional tax department, where companies were initially told to submit their documents on the new forms. These forms were rejected when handed in, since the new forms were not yet approved, and business owners were told to fill out the old ones instead. The business owners returned a few days later with the old forms filled out and then were told they needed to fill out the new ones, and so on. In the end, the new forms were accepted, but all of this resulted in wasted time and additional money. When taking into consideration the multitude of OOOs in Russia and that each will have to go to the tax department at least a few times in this manner, then it is not difficult to see that the remaining four months left until the deadline will be extremely insufficient.

A few experts consider the time period for execution of the law’s provisions to be entirely reasonable and sufficient. They state that changes in the legislation were passed back in December and, during this time, lawyers studied the law and worked on new wording for the statute. Obtaining a notarized certificate for the registration form and submitting the documents for registration is also a well-known, familiar procedure. The registering agencies can complete the registration within seven business days, as has been customary practice for some time. These measures do not call for extraordinary abilities or great amounts of time; essentially, the procedure hasn’t changed at all. It is common knowledge that, before the law went into effect, many LLCs inserted changes into their corporate charters on an almost monthly basis.

Additionally, the experts note, both the registration departments and the corporations already have comparable experience with such matters. After the passage of the law “On Governmental Registration of Corporations and Individual Enterprises” in 2001, all corporations and individual enterprises had to submit their information to the Consolidated State Register within six months.

Negligence toward the new law concerning OOOs carries many negative consequences. Firstly, beginning January 1, 2010, the Federal Tax Service, the Office of Public Prosecutor, and the Central Bank will have the right to take any enterprise to court and force liquidation of its assets. Secondly, OOOs will have to their application to make changes notarized. This is always a major problem because very few notaries take the time to find all of the real facts in terms of the contradictions between the corporate charters and the law. Thirdly, an administrative fine will need to be paid on corporate charters that do not meet the law’s requirements. Failure to turn in one’s documents, late submission, or the submission of incorrect information about a corporation or individual enterprise to the appropriate department carrying out the registrations will result in a warning or administrative fine of 5000 rubles.

Additionally there has been discussion of imposing a fine on OOOs for violating recordkeeping procedures. In such a case, the fine would be even more significant: for an executive, 2,500 – 5,000 rubles; for a corporation, 200,000-300,000 rubles. If a company altogether lacks the appropriate documents required by the legislation, the consequences of the given article would extend to that as well. This relates to not only the regulations, but also to the new documents (for example, lists of shareholders) that OOOs were to have begun processing as of January 1, 2009.

However, it is not expected that such “oppression” of OOOs will be applied on a large scale. When closed joint-stock companies were required to submit documents in accordance with changes in legislation, the registration departments were extremely honorable in their dealings with businesses and sanctions were not applied. However, tax consultants advise against completely dismissing the probability of sanctions.

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