Russian business law: the essentials. Отсутствует

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Professor at Business Law Department,Faculty of Law, Lomonosov Moscow State University,Moscow, January, 2016

      Alexander Molotnikov,[3] Levon Garslian,[4] Andrei Gabov[5]

      Introduction to Business Law in Russia

      Before getting too deep into regulatory details, it seems appropriate and necessary to give a concise historical and conceptual background of Russian business and business law, in order to enable our reader to better understand the current developments.

      1. Entrepreneurship Revival

      For almost 70 years[6] during the existence of the USSR, entrepreneurship was impossible and even illegal. The key feature of the economy in the Soviet period was the "leading role" of the Communist Party. The Soviet economic system had to comply with the principles that the Party proclaimed: one-party leadership, planned economy, state ownership, and high rates of accumulation. To uphold these principals, the use of non-economic coercion could be possible. Thus, the Soviet economy itself was like one large corporation owned by the state and managed by the Communist Party. Only after the fall of the Soviet Union in late 1991 and the transition to the free market economy, one could start thinking about doing business.

      The first legal developments towards the revival of entrepreneurship in the Soviet Union took place even earlier, and are related to the passing of such laws of the USSR as "On individual labor activity" (1986), "On cooperation in the USSR" (1988), and "On general fundamentals of citizen entrepreneurship in the USSR" (1991). Entrepreneurship received the most developed legal regulation in legislation of the Russian Federation – in laws of the RSFSR "On companies and enterprise" (1990), "On registration fee for natural persons carrying out entrepreneurship and a procedure of their registration" (1991), “On property in the RSFSR” (1990), the Constitution of 1993, and the Civil Code of the RF.

      For a revival of entrepreneurship in the Russian Federation, one had to create corresponding economic-legal prerequisites. They were created stage-by-stage via reformation of the economic system at the legislative level. The core change related to the transformation of property ownership. In conditions of a socialist property domination, where state ownership constituted the basis of the economic system of the USSR. With this form of socialist property,[7] the revival and development of entrepreneurship was simply impossible, due to a lack of proprietary forms’ variety, lack of private property, a lack of a market and its participants, and competition.

      A new approach to a system of forms of ownership that developed in our country was expressed by passing the law of the USSR of March 6, 1990, "On property in the USSR," and by passing respective version of the Constitution of the USSR. The law of the USSR "On property in the USSR," (article 2.1.) for the first time directly permitted all the owners and so, even citizens to use property belonging to them for any economical or other activity not prohibited by a law. Furthermore, in combination with the right to use the labor of other citizens during exercise of property rights (article 1, paragraph 4), this law essentially opened a way to a revival of entrepreneurship.

      Therefore, the adoption of the law of the USSR, "On General Fundamentals of Citizen Entrepreneurship in the USSR," seems very appropriate. Enterprises, buildings, equipment, and other means of production, and any other property have become the objects of the private property.

      In the Russian Federation, the Law of the RSFSR of December 24, 1990, "On Property in the RSFSR" in art. 2, paragraph 3, the right of private, state, municipal ownership, as well as of ownership of public associations (organizations) were enshrined. This was the fundamental law which regulated ownership in this period.

      The Constitution of 1993 RF recognized and protected in an equal way private, state, municipal and other forms of ownership (part 2 of art. 8); in the Russian Federation, “land and other natural resources can be in a private, state, municipal and other forms of ownership” (part 2 of art. 9).

      This provision has been developed in the Civil Code RF, article 18, which is devoted to the legal capacity of citizens, granting them the right "to own the property… to carry out business and other activities not prohibited by laws; create legal entities on their own or together with other citizens and legal entities; conduct any transactions not prohibited by laws." Hence, the Civil Code of the RF includes the key condition of entrepreneurship – the right to carry out business activity. Freedom of labor is another indispensable condition of entrepreneurship, granted by the Constitution of the RF (art. 37).

      Thus, by the beginning of the 1990s, the following fundamental conditions, necessary for the existence and development of entrepreneurship, were provided: (1) variety of proprietary ownership (first of all, private property); (2) right to carry out business activity; and (3) freedom of labor.

      2. Economic Environment

      One could think that after getting the necessary legal capacity for doing business in the early 1990s, nothing else was required for the development of entrepreneurship. In theory, this might be true, but of course, not in practice. The stability and strength of the national economy are the key drivers for the development of business, especially at a starting point. With regard to this, it is important to keep in mind that, in 1991, Russia was just getting into the complex process of transitioning to the market economy.

      In the 1990s, the Russian economy experienced a deep recession, accompanied by extremely high inflation, low level of investment, growth of external debt, increase of barters, and many other negative processes. To improve the situation, a series of economic reforms took place, including the liberalization of prices and foreign trade, mass privatization, and other reforms. Nonetheless, in August 1998, Russia announced a default on its state obligations, and refused to support the ruble; in other words, the macroeconomic policy pursued since 1992 had failed.

      During the 2000s, another series of reforms, this time with a positive effect, were made in various spheres, inter alia: (1) tax; (2) pension; (3) banking; (4) electricity; (5) railway. Even foreign experts at that time noticed the effectiveness of the reformation processes initiated by President Putin. For instance, the reform of the taxation system was considered a key factor of the economic growth.[8] All these processes resulted in Russia finishing the year of 2007 as the seventh largest economy in the world, ahead of Italy and France.[9]

      In the late 2000s, Russia experienced a situation that affected many other countries – the financial crisis of 2008, and the ensuing recovery. In March 2010, the World Bank report noted that the losses of the Russian economy were lower than expected at the beginning of the crisis, due to effective anti-crisis measures taken by the government.[10] However, the period of stability after the recovery from the financial crisis did not last long.

      Since the beginning of 2014, the economy has been in stagnation. The outflow of capital from Russia in 2014 amounted to a record $151.5 billion.[11] Moreover, the Russian ruble experienced significant fluctuations and even collapsed against Euro and the US dollar. There were several reasons for this, but the primary reasons were low oil prices, and a political crisis in relations with Ukraine, followed by mass economic sanctions from the US and the EU.

      This brief description of the Russian economy development shows that in the last 25 years, the longest period of the economic stability was less than 5 years. Thus, entrepreneurship, being dependent on the overall economic conditions in the country, has always faced challenges during its

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