Types of Economic Entities and Their Creation
In accordance with the Civil Code of the Republic of Belarus entrepreneurial activity is an independent activity of legal and natural persons carried out in the civil turnover on their own behalf, at their own risk and under their own property liability and aimed at systematic gain of profit from utilization of property, sale of goods manufactured, reprocessed or acquired by them for selling, as well as from fulfilling works and rendering services, when those works and services are offered to other persons and are not used for their own consumption.
The goal of entrepreneurship is to gain profit or personal income. Entrepreneurship entity acts in the civil turnover on its (his/her) own behalf and at its (his/her) own risk. It means that it (he/she) bears unfavorable property consequences of the entrepreneurial risk, risk of sudden loss of the object of entrepreneurial activity, etc.
Entrepreneurship entity bears property liability. By entrepreneurial activity of a legal person, in accordance with legislation it bears liability under its obligations with all property it has; in cases provided by legislation if there is not enough property of the legal person its founders bear subsidiary liability for its debts. Individual entrepreneur is liable under his/her obligations with all property.
The most widely spread form of entrepreneurial activity is the creation of a legal person. Legal person’s functions:
1. Representation of joint interests. The institution of legal personality in some way puts an order to internal relations among the participants of the legal person transforming their will into the will of the legal person enabling it to act “on its own behalf” in the civil turnover.
2. Joining funds. Legal person is an optimal form for the long-term funds centralization. Wide-scale business activity is impossible without such centralization.
3. Limitation of entrepreneurial risk. The construction of legal person enables the participants to limit their property risk by the sum of their contribution to the capital.
4. Capital management. The institution of a legal person provides basis for more flexible use of the capital belonging to one person in different spheres of business activity.
The legal person has typical features every one of which is necessary and together they are sufficient for the organization to be recognized a subject of law. There are four basic features of the legal person:
1. Organizational unity. Any legal person always has some structure: there are bodies of the legal person, which have certain hierarchy in relation to each other; relations among participation of the legal person are clearly regulated, that means the scope of participation of every one of them, their rights and duties in the legal person are clearly determined.
The organizational unity of a legal person is set forth in its statutory documents (Articles of Association and (or) Constituent (statutory) Agreement) as well as legal acts that determine legal status, rights and duties of the legal person.
The Articles of Association is a document that determines the legal status of the legal person and that is approved by its founders.
The Constituent (statutory) Agreement is an agreement on joint activity. It determines rights and duties of founders (members) in relation to each other, to the third persons and to the prospective legal person in regard to the creation of this legal person.
2. Separate Property. Joining the equipment, buildings and money into one property complex belonging to the organization and its separation from the property belonging to other persons is the property separation of the legal person.
The property complex may include some property benefits (property as it is) but property rights, property obligations and intellectual property as well. The legal person may own the property or it may enjoy economic running or operative management rights to this property, or the property may be leased. The property in this case is separated from the property of the participants and does not depend on whatever happens to participants. The formation of the separate property at the legal person, as a rule, is connected with formation of statutory fund (capital). The applied evidence of property separation of the legal person is the presence of its independent balance or independent expense budget.
3. Act in the civil turnover on its own behalf. It means that there is a possibility on its own behalf to acquire and enjoy rights and bear responsibilities as well as to be a plaintiff or defendant in court. The fact that the legal person uses its own name makes it possible to identify it and distinguish it from all other organizations.
Legal capacity and dispositive legal capacity of the legal person is acquired at the same time when it is created, that is in accordance with the Civil Code is the moment of state registration of the legal person (part 2 article 47), in particular, the moment the note about its registration is introduced into the Single State Register of Legal Persons and Individual Entrepreneurs.
Legal capacity is an ability to have rights and duties.
Dispositive legal capacity is the ability by one’s own actions to create, acquire, realize and execute rights and duties.
Civil Code of the Republic of Belarus provides the legal person with a special (purpose) legal personality. That means that the legal person may enjoy civil rights corresponding to its purposes of activity stipulated in its constituent documents, as well as to the subject of its activity if it’s mentioned in the statutory documents (part 1 article 45 of the Code). Some kinds of activity the list of which is approved by the Edict of the President of the Republic of Belarus of September 1, 2010 No. 450 “On Licensing of Some Kinds of Activity” may be carried out by legal persons only with a special permit (a license).
Commercial and non-commercial legal persons have different legal personality. A non-commercial organization may carry out the entrepreneurial activity in so far as it is needed in order to reach its statutory purposes it was created for, and complies with these purposes and the subject of its activity.
So the legal person may be limited in their rights only in cases and in accordance with the procedure provided by legal acts. The decision about limiting the rights may be appealed by the legal person in court (part 2 article 45 of the Code).
A legal person has the right to create its affiliations and representations in accordance with article 51 of the Civil Code. Affiliations and representations are not legal persons. They are given property of the legal persons that created them and are governed by the regulations those legal persons approve.
In order to distinguish the legal person from the number of other organizations they use the means of its individualization. The main ones are the name and firm name of the legal person.
Name of the legal person shall include an indication to its organizational and legal form. The name of non-commercial organizations and unitary enterprises, and in cases provided by legislation – other commercial organizations, shall contain the indication on the character of the legal person’s activity. For instance, the application of words “Belarusian” and “National” is strictly regulated (Edict of the President of the Republic of Belarus of May 31 2005 No. 247).
Any legal person shall have a short name.
Legal person which is a commercial organization shall have a firm name of the legal person.
Legal persons the firm name of which is registered in established order enjoy exclusive right to use it on its manufactured goods, their package, in advertisements, sign boards, brochures, accounts, printed publication, official blanks and other documentation connected with its activity as well as during demonstration of the goods at the fairs and exhibitions that are held on the territory of the Republic of Belarus (article 1013 of the Code).
Another mean of individualization of any legal person is its place of location that is determined by the place of its state registration unless the statutory documents of the legal person stipulate otherwise in accordance with legal acts (part 2 article 50 of the Civil Code).
The Civil Code provides creation of organizations that pursue gaining profit as the main goal of its activity and (or) distribute the gained profit among its participants (commercial organizations) or that do not have the gaining of profit as its goal and that do not distribute the gained profit among its participants (non-commercial organizations) (part 1 article 46 of the Code).
Legal persons being commercial organizations, in their turn, may be created in the form of economic partnerships or societies (part 1 article 63 of the Code), production cooperative, unitary enterprises and farms (part 2 article 46 of the Code).
In accordance with part 2 article 63 of the Civil Code economic partnerships may be created in the form of unlimited partnership and partnership in commendam (limited partnership). Only individual, as a rule, individual entrepreneur, may be a partner in the unlimited partnership.
A partnership in commendam is a partnership where along with full partners there is one or several participants (contributors, limited partner) who bear the risk of losses connected with the activity of the partnership limited by the sums of their contributions made and do not participate in the entrepreneurial activity of the partnership (part 1 article 81 of the Code).
Economic societies may be created in the form of limited liability company (part 1 article 86 of the Code), additional liability company (part 1 article 94 of the Code) and joint stock company (part 1 article 96).
The Law of the Republic of Belarus of December 9, 1992 “On Economic Companies” sets up types of these economic societies and regulated the procedure of its activity.
In accordance with the Law of the Republic of Belarus of March 12, 1992 “On Securities and Stock Exchanges” a share is a document certifying the right of the holder for the stake of property of the joint stock company giving the right to its holder to receive a part of the profit of the company in the form of dividends and to participate in running of the company. The participants of the joint stock company (shareholders) are not liable under the company’s obligations and bear the risk of losses connected with the company’s activity limited by the cost of their shares.
One of the organizational legal forms of the commercial organizations is a production cooperative (artel) – an organization participants of which shall introduce a share contribution and to take personal participation by their work in its activity. So, the property possessed by the cooperative is divided into shares of its members in accordance with the Articles of Association. General provisions about the production cooperative are laid down by the article 107 of the Civil Code.
A unitary enterprise is a commercial organization not having the right of ownership over the property at its disposal. Such property may belong to the unitary enterprise based on the right of economic running or operational management. The property of the unitary enterprise is indivisible and cannot be distributed under the shares (contributions), including the distribution among the enterprise workers (article 113, 276-278)
Fruits, production and incomes from utilization of the property being in economic running or operational management as well as the property acquired by the unitary enterprise under the contracts or other grounds goes under economic running or operational management of the enterprise (part 2 article 280 of the Code).
Legislation provides formation of the unitary enterprises based on economic running (except for the state enterprise based on operational management, that may be formed under the decision of the Government of the Republic of Belarus in cases stipulated by legislation on unitary enterprises) exclusively based on the property owned by the Republic of Belarus.
The Republic of Belarus is subsidiary liable under the obligations of the state enterprise, in cases there is not enough property of the enterprise.
The Civil Code provides a special form of legal person that is a farm (in edition of the Law of the Republic of Belarus of July 14, 2000).
State Registration of Economic Entities
Procedure for state registration of economic entities is established by the Decree of the President of the Republic of Belarus of January 16, 2009 No. 1 “On Order of State Registration and Liquidation (Termination of Activity) of Economic Entities”.
The Decree establishes the procedure for registration and the list of documents needed for the state registration of economic entities.
The state registration of some economic entities (consumers’ societies and their unions, banks, non-bank credit and financial organizations, insurance organizations (including mutual insurance societies, insurance brokers and associations of insurer’s) (hereinafter – insurance organizations) open joint stock companies created in the process of denationalization and privatization of state-owned property, commercial organizations with foreign investments as well as economic entities in free economic zones, unions of legal persons created under the decision of the President of the Republic of Belarus or Government of the Republic of Belarus) is regulated by the mentioned Decree taking into account the peculiarities established by legislation for the state registration of relevant economic entities.
So, the state registration of banks, non-bank credit and financial organizations is regulated by the provisions of the Bank Code of the Republic of Belarus.
Peculiarities of creation and state registration of commercial organizations with foreign investments are provided by the Investment Code of the Republic of Belarus adopted on June 22, 2001.
The procedure for registration of economic entities in free economic zones is established by the Law of the Republic of Belarus of December 7, 1998 “On Free Economic Zones” (amended as of December 22, 2011), Edict of the President of the Republic of Belarus of June 9, 2005 No. 262 “On Some Questions of Activity of Free Economic Zones on the Territory of the Republic of Belarus” as well as Regulations about every FEZ approved by the Council of Ministers of the Republic of Belarus.