Open an LLC, ChUP or JSC in Belarus

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  1. Overview of all forms of legal entities
  2. ChUP and LLC comparison

1. Overview of all forms of legal entities

The issue of starting a business in Belarus is associated with the issue of choosing the organizational and legal form of a commercial organization. Belarusian corporate law provides a wide range of relevant forms. Some of them, such as general and limited partnerships, are a kind of legal atavism, others, such as a limited liability company and a private unitary enterprise, are widely used by both large and medium-sized businesses.

Choice of organizational and legal form depends on factors such as the type of activity, the size of the investment, and the number of founders. So, creating an organization planning to engage in foreign economic activity, it will be inappropriate to create a private unitary enterprise. Since this organizational and legal form is absent in a number of jurisdictions, which may cause distrust among counterparties. The size of the authorized capital of a private unitary enterprise and LLC is not limited to either the minimum or the maximum parameter. The same cannot be said about a joint stock company.

Registration of a joint stock company possible for businesses of any investment category. However, the feasibility of creating this economic society with a small planned volume of investments is small, since it will only entail additional costs with a minimum of benefits. In general, the use of such an organizational and legal form as an open joint stock company in the Belarusian realities is limited due to the relatively low level of development of the securities market. Therefore, this form is mainly used in the field of privatization.

The number of founders no longer has such an impact on the choice of organizational and legal form, as it had earlier during the period of the ban on the establishment of a LLC with one participant. However, a private unitary enterprise can still only be established individually. This is worth remembering if there are prospects for alienating a business or investing through the inclusion of new partners with an additional contribution. The maximum limitation of the participants of LLC, ODO and CJSC to fifty persons is still in force. However, in the Belarusian reality, this rarely causes problems in the field of private business.

A company with additional liability is currently not in demand among Belarusian business entities due to the fact that there are currently no benefits when creating this legal entity. However, the form under consideration may become more in demand over time, since it consolidates an increased level of trust among some counterparties. At the same time, the responsibility of the founders is in any case high due to the established practice of bringing them to subsidiary liability in bankruptcy proceedings.

Influence of the organizational and legal form on the tax regime at present, it is practically absent, despite some deep-rooted myths, related in particular to the fact that for a long time only a private unitary enterprise had the right to assign the functions of an accountant to a director. Thus, the relationship between the costs of doing business and the choice of the organizational and legal form can only be discussed in the light of the issue of current costs of performing certain procedures (for example, deposit service of a joint-stock company). 

All organizational and legal forms of a commercial organization, except for a unitary enterprise, require presence of a legal address in non-residential premises... However, when deciding to register a commercial organization in a residential premises at the place of registration of the founder, one should remember, firstly, about the conditions of such registration regarding the consent of persons eligible in relation to this premises, and secondly, about the increase in utility rates following such registration. In certain cases, it will be more expedient to register a commercial organization at a legal address in a non-residential premises with a minimum allowable area (4 square meters).

Choosing an organizational and legal form, it is necessary to take into account a number of factors. In this case, such factors as the size of the authorized capital, the type of activity, the number and structure of the planned investments are decisive. Not the least important issue is the number of founders and legal address. A qualified corporate lawyer will help you avoid mistakes in resolving this issue based on ignorance of the law. However, the final choice is yours.

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2. Private unitary enterprise and LLC: comparison

The disadvantages of a private unitary enterprise as an organizational and legal form include the impossibility of having more than one participant in its composition. However, as practice shows, this is often not the case for small and medium-sized businesses. As well as a subjective disadvantage of using private unitary enterprises in the field of foreign economic activity, they call the low level of confidence in this organizational and legal form on the part of foreign counterparties. Indeed, in many jurisdictions such an organizational and legal form does not exist. In addition, many counterparties may be confused by the fact that the private unitary enterprise is not the owner of the property belonging to it, but owns it on the basis of the right of economic management. The institution of economic management is incomprehensible to many foreigners, especially those from countries that use the Anglo-Saxon legal system.

The last circumstance (the institute of economic management) is the main thing advantage of PUE in some situations. So, in order to replenish the payment account of the private unitary enterprise, it is not necessary to give loans or increase the authorized capital, without which, unfortunately, it is impossible to do in business companies. The founder of the private unitary enterprise has the right to transfer additional property of the private unitary enterprise within the framework of one owner without a loan or amending the charter, which is convenient. In addition, loans burden the company's balance of payments.

Also the founder of the PMU is entitled withdraw property of PUE from his economic management. It is recommended to define in detail in the statute the procedure for such withdrawal. However, the right to withdrawal should not be abused, since in the event of bankruptcy, the founder will be assigned subsidiary liability for the obligations of the PMU. However, the risk of subsidiary responsibility has recently become very high for the founder, regardless of the legal form and even the model of his behavior (not counting the behavior model as inaction).

Alienation of PUE perhaps either by registering a property complex in the cadastral agency with its subsequent sale, or by so-called two-step reorganization (PUE-LLC-PUE). The advantage of the first method is the legal purity of the transaction, and the disadvantage is considerable time costs (up to one month). The second method in terms of speed is not much lower than the sale and purchase of an LLC share, but it should be avoided when disposing of large enterprises with a significant amount of property. One way or another, when opening a commercial organization, few people think about the convenience of its subsequent alienation.

A common myth is that a private unitary enterprise is simpler than an LLC in terms of bookkeeping and tax accounting. However, there is currently no difference on this issue. Both the tax rates and the grounds for applying the simplified taxation system are uniform. Nowadays, there is no norm that the director can assume the functions of an accountant in a private unitary enterprise. A similar possibility exists in the current Law "On Accounting and Reporting", but the criteria are completely different, not depending on the organizational and legal form.

In conclusion, we can conclude that despite the obvious shortcomings, opening of private unitary enterprise continues to be a good option for running small and medium-sized businesses, even in the era of LLC with one founder. The main advantage of ChUP is a special property regime, which allows the founder to regulate the size of the property without resorting to burdensome structures.

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