Exit of a foreign participant from the LLC in 2023
- The procedure for the withdrawal of a foreign founder from an LLC
- Sale of a share in LLC
- Alienation of a share in an LLC in favor of the company
- Taxation when a foreigner leaves an LLC
- Obtaining permission from the Government Commission for the exit of a foreigner from an LLC
- What rights and guarantees are there?
Foreign economic activity and attractive investment opportunities make Russia a good place for foreign entrepreneurs. Many of them decide to create their own limited liability company in Russia to conduct business. However, as in any other business, there are risks that the owners may face the need to exit the LLC. In this article, we will look at the process of a foreigner leaving an LLC and give some advice on this issue.
The procedure for the withdrawal of a foreign founder from an LLC
- To understand the Russian laws and the charter of the company. Before proceeding with the procedure of exiting an LLC, a foreign entrepreneur should carefully study the Russian laws and the company’s charter. The Charter defines exit procedures and may include specific requirements that must be met.
- Understand the reasons for the exit. Before the procedure of leaving the LLC, a foreign entrepreneur should determine the reason why he wants to end his participation in the company. This may be due to changes in the business plan, inconsistency between the founders, sale of a share, alienation or other circumstances. Understanding the reason for the exit will help you choose the most appropriate way to complete the activity.
- Initiate a meeting of the founders. According to Russian legislation, the decision on the withdrawal of a foreigner from an LLC must be made at a meeting of the founders. The founders discuss the reasons and conditions for the withdrawal and make a decision by a majority vote specified in the charter. This decision should be formalized by the minutes of the meeting.
- Change the charter of the organization. To formalize the exit of a foreigner from an LLC, it may be necessary to amend the company’s charter. These changes may include information about the withdrawal of the participant, the order of redistribution of his share and other important aspects. The Charter must be registered with the state registration bodies of legal entities.
- Calculate the cost of the share. When leaving the LLC, a foreigner must determine the value of his share in the authorized capital. This may require an assessment of the company’s property and financial activities. The cost of the share will be used in exit calculations and can be paid to a foreigner in accordance with the decision of the founders.
- Issue all the necessary documents. Registration of the exit from the LLC includes the preparation and submission of various documents to the state registration authorities of legal entities. These may be documents on the registration of amendments to the charter, on the alienation of shares and other necessary papers.
- Complete the process completely. After completing all the necessary procedures and paperwork, a foreign entrepreneur is considered to have left the LLC. This means that he is no longer responsible for the company’s activities and has no rights to its profits.
The exit of a foreigner from a Russian company is a process that requires attention to detail and compliance with legal requirements. A foreign entrepreneur should familiarize himself with domestic laws and the company’s charter, determine the reasons for withdrawal and carefully follow the procedures established by law. With the help of proper preparation and careful execution of all stages, a foreigner can successfully complete his participation in a Russian LLC and move on to new business opportunities.
Sale of a share in LLC
As mentioned earlier, Russia attracts foreign entrepreneurs with its investment opportunities and rich business potential. But, having acquired a share, they may eventually give it up. The reasons vary in each case, but the most common way to exit the company is to sell your part of the business.
Before starting the sale process, it is necessary to carry out preparatory steps:
- Estimate the value of the share. Before putting a share up for sale, it is necessary to determine its value. This may require an assessment of the property and financial activities of the LLC.
- Study the charter of the LLC. It is necessary to carefully study the charter of the company. The Charter may contain specific rules and conditions regarding the sale of the share.
- Coordinate the transaction with other participants. If there are other founders in the LLC, they must be notified of the desire to sell the share. According to the law, participants have a preliminary right to purchase a share, which means that they can express interest in buying at the same price and conditions that were offered to other buyers.
To complete the transaction, you will need the following set of documents:
- Agreement on the sale of a share. This document defines the terms of the transaction, including the cost, terms and other agreements between the seller and the buyer.
- Minutes of the Founders’ meeting. The meeting of the founders of the LLC must decide on the sale of the share. This decision is recorded in the protocol.
- Share valuation act. If an assessment of the share is required, it is necessary to draw up an assessment report that confirms the value.
- According to Russian legislation, the sale of a share in an LLC must be registered with the state registration authorities of legal entities. It is necessary to submit the relevant documents and pay the registration fees. It is also necessary:
- Notify the tax authorities. It is important to notify the tax authorities about the sale of the share and pay taxes on the funds received.
- Transfer rights. After completion of the transaction and registration, it is necessary to transfer the rights to the share to the buyer, as well as notify the state registration authorities about this.
Upon completion of all formalities and full transfer of the share to the buyer, the transaction is considered closed. Corporate transaction lawyers will help make sure that all the steps are followed correctly.
Selling a stake in a Russian LLC to a foreign entrepreneur can be a difficult, but doable task, provided careful preparation and compliance with legal requirements.
To ensure the purity of the transaction, use our recommendations:
- Sometimes it is possible to sell a share in parts if the company conducts several different types of activities.
- It is better to start preparing documents in advance, as well as conduct a full audit of the company. In this case, it will be possible to identify all the problems, fix them, and then sell the company.
- During the sale of a share, it is better for managers to manage the company’s affairs. This will help save time and focus on finding buyers.
Alienation of a share in an LLC in favor of the company
This is the second way to organize the participant’s exit from the LLC.
Alienation of a share is the process of transferring a share in the authorized capital of a company from one founder or investor to another. It can come from various motives, including a change in business strategy, financial needs or personal circumstances.
Alienation is possible in two ways:
- Transfer of the seller’s share in favor of the company.
- Transfer of a share to a third party.
If no one wants to buy a share, the founder has the right to demand that the share be repurchased by the LLC itself. This is possible if the company’s charter prohibits the sale of shares to third parties who are not members of the LLC, or if at least one participant at the general meeting of the founders opposed it.
The company’s share repurchase transaction must be carried out within 90 days in the absence of additions to the charter. After the transaction is completed, the share is divided into parts in proportion to the percentages of the shares of other founders.
The whole process of alienating a share in an LLC in favor of a company is very similar to the process of selling a share to third parties. However, there are still some differences:
- If there is an opportunity in the charter to acquire a share by the company, the right will be exercised within one week if other LLC participants refused to acquire a share or missed the deadline when it was necessary to provide documents with a desire to acquire it. To start the process of buying a share by the company, it is necessary to send an acceptance.
- During the next year after the purchase of the share, it is distributed proportionally to the existing shares of the participants.
Taxation when a foreigner leaves an LLC
A former member of a limited liability company must pay the necessary taxes. Usually, the company independently withholds the necessary amounts before transferring money to a non-resident. If this has not been done, then the foreigner must fulfill the obligation on his own. What taxes are we talking about?
- VAT. It is paid if the former participant receives the sold share of the property. VAT is charged on the difference between the nominal value of the share and the price of the transferred property, if this difference is “plus”.
- Income tax. The payment of a share to the former founder is not an expense of the company. And such a payment does not reduce the income tax base. However, the company that receives the share must pay 20% of the transaction amount. The base will be the difference between the initial payment and the actual cost of the share.
- Personal income tax. If a foreign individual receives a share, then the tax is withheld at a rate of 30% from the entire value of the share when leaving the company.
Is it possible to save on taxes? A non-resident has no right to reduce the amount received by the amount of deductions. That is, a person needs to pay personal income tax from the entire amount of income received. The Tax Code of the Russian Federation does not contain in the text a special procedure for calculating tax when a foreigner sells a share in the authorized capital. The rule states that the tax is withheld and transferred by a tax agent – a domestic company to which a non-resident sold his share.
Obtaining permission from the Government Commission for the exit of a foreigner from an LLC
To consider the request of the Government Commission, it is required to submit an appropriate application and the necessary documents. The permit application must contain information about the purpose, subject, content and essential terms of the transaction, as well as the planned validity period of the permit. Legal entities-applicants must attach a document confirming their state registration, as well as constituent documents. Foreign organizations that are not legal entities must submit a document confirming their establishment in accordance with the legislation of the country where they are registered.
Individual applicants, except sole proprietors, must submit a document certifying their identity. It is also required to provide information about the beneficiaries, beneficial owners and the person exercising control over the party to the transaction, if they are unfriendly non-residents, as well as an inventory of documents.
An application for a transaction permit, on the basis of which a Government Commission makes a decision, must be submitted to the Ministry of Finance of the Russian Federation by residents or foreign citizens and organizations committing unfriendly acts, or persons associated with foreign states committing unfriendly acts.
What rights and guarantees are there?
First of all, it is worth noting that foreigners have the right to conduct business activities throughout the Russian Federation on an equal basis with Russian companies and citizens. The legislation restricts the participation of foreigners in LLC companies that are engaged in certain types of activities, for example, private security activities. Special conditions for the admission of foreigners to conduct business in certain regions of Russia may be established by law when necessary in order to ensure the defense of the country and the security of states. For example, this applies to NGOs.
From the date of entry of a foreigner into the company, the investor enjoys legal protection, guarantees and benefits established by law. For example, a foreigner may claim damages if they were the result of illegal actions or inaction of state bodies. From the date of withdrawal from the membership, the investor loses these privileges. However, in any case, the participation of a non-resident in an LLC is subject to the norms of Russian legislation with restrictions established by special laws regulating certain types of activities.
Question and answer
This can happen if a non—resident is the sole founder of the company. The second reason is if the charter does not provide for the withdrawal of a person from the LLC. In this case, it will not be possible to obtain consent at the general meeting. The only way to leave the LLC is to sell the share. The permission of the Government Commission under Decree No. 81 for such a transaction is needed only if real estate is paid instead of money.
Such an exception is possible through the court. Grounds for filing a claim: gross violation of the obligations of the participant, complication of the general activities of the company due to improper actions or inaction of the participant. The latest violations include constant evasion without valid reasons from participating in the general meeting of LLC participants. It is important to prove that these actions caused significant harm to the society and (or) made the company’s activities impossible.
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