In choosing between an LLC and a JSC in establishing a wholly-owned subsidiary, LLCs appear to be more popular than JSCs, due to the various establishment considerations discussed below. Generally speaking, the main general corporate benefit of an LLC in comparison with a JSC is that the procedure for the establishment and the operation of an LLC is significantly less burdensome and time-consuming, since there is no legal requirement that an LLC must issue shares or perform the procedural steps required in connection with its issuance (e.g. the establishment and maintenance of a securities register, etc.). The absence of necessity to issue shares in an LLC makes this form of legal entity more mobile and flexible when it is necessary for participants of the LLC to change (increase or decrease) the charter capital of the company.
Still, a JSC may be preferable for a joint venture in Russia between unrelated parties. This is mainly due to the following reasons. In an LLC, each participant is entitled to leave the company at any time and for no reason, irrespective of the consent of the other participants. This right entitles the participant to receive from the LLC an amount corresponding to its proportionate share of the value of the LLC’s property, determined by reference to its proportionate share in the charter capital of the LLC.
Also, participants in an LLC who either individually or collectively hold at least a 10% interest in the company’s charter capital can apply to a court seeking the expulsion of another participant. In order to actually exclude a participant from the LLC, the other participant(s) must prove that the participant substantially hindered the company’s operations or materially breached its obligations.
Further, in contrast to the JSC law, the LLC Law contemplates a large number of issues which require a unanimous voting decision of all of the LLC participants, what may be unfavorable for a joint venture partner which is a majority participant in the LLC.
Source: Doing business in Russia by Baker & McKenzie
