Regulation of Entrepreneurship in the
Russian Federation
Mikhail I. Braginsky
The Civil Code of the Russian Federation
(“C.C.R.F”) stands in stark contrast with the set of
rules that previously governed the U.S.S.R. The inno-
vative and revolutionary quality of the C.C.R.E is espe-
cially revealed in its treatment of entrepreneurial activ-
ity. In particular, buttressed by the Constitution of the
Russian Federation and statutory laws, the C.C.R.F
establishes a wide spectrum of possibilities for entre-
preneurial activity with the new Russia.
I1 existe une difference flagrante entre le Code ci-
vil de la Ffdration russe et les lois qui ont gouvem6
I’U.R.S.S. Le caract6re innovateur et r~volutionnaire du
Code civil est surtout apparent lorsque l’on observe son
approche aux activit~s anim~es de l’esprit d’entreprise.
Le Code civil, soutenu par Ia Constitution de la Fdd-
ration Russe et les lois statutaires, 6tablit une impor-
tante gamme de possibilitts pour ces activitts au sein
de la nouvelle Russie.
The author begins his analysis with a historical
overview of the relationship between civil and com-
mercial law in Russia from the pre-revolutionary draft
code through to its current incarnation. The pervasive
influence of the notion of “monism” (the unity of civil
and commercial law) is emphasized. Next, the author
moves on to a discussion of who qualifies as an entre-
preneur under the C.C.R.E as well as an exploration of
who may engage in entrepreneurial activity. This dis-
cussion highlights the advantages and disadvantages
for foreigners wishing to pursue entrepreneurial activi-
ties
the
C.C.R.F.’s regulation of issues related to bankruptcy
and insolvency including breach of contract, liability of
the debtor, protection of creditor interests, and special
norms for the protection of third parties. The author
concludes with a consideration of a range of rights en-
joyed by entrepreneurs under the C.C.R.E Of particular
importance are the rights of ownership of land, prop-
erty, economic management, and operative administra-
tion. Also, an identification of the various kinds of en-
trepreneurial contracts available under the C.C.R.F. is
provided.
in Russia. The author
then focuses on
With reference to particular codal provisions and
the significance of those provisions for entrepreneurs,
the author demonstrates that the C.C.R.F. provides the
bedrock of freedom of contract for entrepreneurial re-
lations.
L’auteur dtmarre son analyse avec un survol his-
torique de la relation entre le droit civil et le droit
commercial en Russie, du projet de code prd-
rtvolutionnaire A sa forme actuelle. L’accent est plac6
sur l’influence rdpandue de la notion du emonisme >
(l’unit6 des droits civil et commercial). L’auteur pour-
suit ensuite avec une discussion sur ce qui constitue un
entrepreneur sous le Code civil ainsi qu’une 6tude des
personnes 6ligibles pour s’engager dans des activitts
animdes de l’esprit d’entreprise. Cette discussion souli-
gne les avantages ainsi que les inconv~nients pour les
6trangers qui dtsirent poursuivre de telles activitds en
Russie. L’auteur se concentre ensuite sur la rglemen-
tation dans le Code civil des problmes concemant la
faillite
violation
d’obligations contractuelles, la responsabilit6 du d6bi-
teur, la protection des inttr~ts du crdditeur et des nor-
mes spdciales pour la protection de tierces parties.
L’auteur conclut en consid6rant l’6tendue des droits
dont peuvent profiter les entrepreneurs sous le Code ci-
vil. Sont d’importance particuli~re les droits de pro-
pri&6t
terrains, d’administration 6conomique,
d’administration en vigueur et le droit des biens. Est
aussi foumie une identification des diffdrents types de
contrats d’entreprise offerts sous le Code civil.
l’insolvabilit6,
de
et
incluant
la
En se rdf6rant Z des articles spdcifiques du Code
et A leur importance pour les entrepreneurs, l’auteur
ddmontre que le Code civil foumit la base de libert6
pour les relations d’entreprise.
. Emeritus Scientist and Head Research Associate at the Institute of Legislation and Comparative
Law of the Government of the Russian Federation.
McGill Law Journal 1999
Revue de droit de McGill 1999
To be cited as: (1999) 44 McGill L.J. 383
Mode de rdfdrence : (1999) 44 R.D. McGill 383
384
MCGILL LAW JOURNAL / REVUE DE DROIT DE MCGILL
[Vol. 44
Introduction: Pre-Revolutionary Visions of Commercial Law
I.
Strengths and Weaknesses of Post-Revolutionary Codification
I1. The Dualist/Monist Opposition and its Influence on Reform
A. Dualism
B. Monism
Ill.
Freedom of Entrepreneurship and Supremacy of the Civil Code
IV. Recognition of Natural and Legal Persons as Entrepreneurs
V.
The Role of the Foreign Entrepreneur
VI. The Legislative Treatment of Entrepreneurship
VII. Liability
VIII. Private Ownership
IX. State Ownership
X.
XI.
Rights of Economic Management and Operative Administration
Specific Features of the Entrepreneurial Contract
Conclusion: Classification of Entrepreneurial Contracts
References
1999]
M.L BRAGINSKY – REGULATION OF ENTREPRENEURSHIP
385
Introduction: Pre-Revolutionary Visions of Commercial Law
In pre-revolutionary Russia, civil law literature was dominated by the idea of
“monism”, that is, the unity of civil and commercial law. This idea was most consis-
tently expressed in the works of G.F. Shershenevich. He clearly distinguished public
commercial law-which involves regulating the relations between the State and per-
sons who are engaged in trade-from private commercial law-which governs the
relationship between private persons engaged
to
Shershenevich, this area of law is “nothing more than a monographic development of
a civil law section resulting from practical interest'”
in commerce. According
Shershenevich strongly criticized those who considered commercial law as a
complex of norms which were applied only in trade relations He believed that
such kinds of norms … are very few, and they are too fragmentary to create
something integral on that basis. [He asked] what ideas could one get on a
commercial purchase under the French law on the basis of a single article (arti-
cle 109) in the French Commercial Code devoted to this key commercial trans-
action?
The development of the first draft of Russia’s Civil Code-which appeared in the
last quarter of the 19th century-was also influenced by monism. Unlike the model
seen in Germany, France, and a number of other countries which used to have parallel
civil and commercial codes, the draft version of Russia’s Civil Code (including the
last version submitted to the State Duma) was created with the aim of regulating civil
relationships in broad terms. Under this draft, most norms were uniformally applica-
ble whether or not the relationships involved entrepreneurs. One of the basic sections
of the draft-in particular, Book 5 on the “Law of Obligations”-included chapters
that focused on contracts in which at least one of the parties was an entrepreneur, for
example, in the transportation of goods, insurance, etc. The same section contained
chapters on the legal status of the entrepreneur, including various kinds of companies,
partnerships, and labour cartels (i.e., cooperatives).
‘ G.F. Shershenevich, Course in Commercial Law, vol. 1 (Moscow: Spark, 1907) at 10.
2 A.F. Fyodorov referred to, inter alia, the cosmopolitan nature of commercial law which allows one
to more easily overcome the national particularities of the civil law of a certain country. See A.F Fyo-
dorov, Commercial Law (Odessa, 1911) at 14-15 citing civil law jurists such as Gierke, Cosack, Gold-
schmidt, Molinier, Valabregue and Thallr.
3 Supra note 1. Views similar to those of Shershenevich are also expressed by other authors in their
research works on commercial law. See especially V.S. Udintsev, Russian Civil Commercial and In-
dustrial Law (St. Petersburg, 1917); L.S. Tal, Essays on Industrial Law (St.Petersburg, 1917); and A.I.
Kaminka in the book The Basics of Business Law (Petrograd, 1917) who limited the subject of this
area of law to entrepreneurship without having mentioned a certain special “entrepreneurial law”. For
him, the total concept boiled down to the necessity to distinguish a special figure of law: the entrepre-
neur. He found the roots for such a necessity in a famous instruction of Katon to his son: “It is par-
donable for a widow not to multiply the property she inherited, but the son should pass on to his chil-
dren twice as much than he himself inherited ”
386
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
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I. Strengths and Weaknesses of Post-Revolutionary Codification
In the early 1900s, a draft Civil Code was prepared by Russian legislators. How-
ever, it was never approved, primarily because of the outbreak of World War I and the
subsequent October Revolution. Immediately following the Revolution, numerous
acts were adopted aimed at the nationalization of banks and major enterprises, as well
as establishing government control over small businesses. It was no mere coincidence
that one of the decrees published at the time was titled “On Legal Restrictions Estab-
lished for Commercial and Commercial-Industrial Enterprises”
At the time, however, the situation in industry, commerce, and particularly in
agriculture led the State to initiate a transition to a “new economic policy”. Its essence
was reflected in the “revival of capitalism” which implied the creation of small private
enterprises, the development of which was rigidly limited to private commerce. At the
same time, the need to open the way for foreign capital in the form of concessions
was recognized. To this end, stable legislation was ensured for the benefit of foreign
investors, and guarantees were provided against the encroachment of the State on
their property. All of this led to an urgent necessity to codify legal principles with re-
spect to the whole body of property relations that arose in the newly forming market.
For this purpose, the first Civil Code of the Russian Soviet Federated Socialist Repub-
lic was adopted on December 31, 1922.’
To a certain extent, the 1922 Civil Code reproduced the norms of the pre-
revolutionary draft Civil Code. Several new provisions also appeared that established
the unconditional priority of state ownership-including state enterprises-and
thereby introduced various kinds of restrictions on private capital. For example, al-
though article 5 of the 1922 Civil Code granted each citizen the right to “organize in-
dustrial and commercial enterprises,” article 54 stipulated that commercial and indus-
trial enterprises may only be the object of private ownership where the number of em-
ployees did not exceed the maximum established by law (i.e., twenty employees). To
achieve the State’s goals, the 1922 Civil Code declared civil rights-and consequently
the rights of entrepreneurs-to be “protected by the law with the exception of in-
stances when their execution runs contrary to their social and economic purpose”
This formula gave the courts a broad discretion to limit the civil rights of private en-
trepreneurs.
Under direct pressure from the State, private capital gradually retreated. The fur-
ther development of the country led to a situation where private entrepreneurship was
ultimately not permitted to develop. As a result, most of the nation’s production reve-
nues-up to 90%–fell into state ownership. Apart from the State, only cooperatives
were engaged in production and commercial activity. The 1936 Constitution of the
Russian Federation did not include private ownership in the list of permitted forms of
ownership. Thus, apart from the cooperatives, it was evident that only one entrepre-
‘ Presidential Decree No. 47 (1918), item 561.
‘Hereinafter 1922 Civil Code.
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M.IL BRAGINSKY – REGULATION OF ENTREPRENEURSHIP
neur remained in the country-the State itself. As such, commercial relations were
mainly restricted to those between organizations-each of which belonged to the
State-and between these organizations and individuals.
A direct consequence of joining, in a single person, the sovereign and the owner
of the greater bulk of property in the commercial transaction was that vertical rela-
tions typical of public law extended to the realm of private law. The area of contracts
provides such an example. The legislator recognized that the basis for contract could
be a plan approved by an agency superior to the State organization (i.e., a legal entity).
Such planned arrangements would necessarily specify who was obliged, or at least re-
ceived the right to conclude the contract and prescribe its contents.
Under such conditions, the 1922 Civil Code lost its significance. It turned into a
Code exclusively for the protection of individuals. In this regard, the 1936 Constitu-
tion of the Russian Federation recognized the right of individuals to “private personal
ownership” which only meant the possibility to own a residential home the size of
which could not exceed sixty square meters, a secondary home, household items, and
items of personal use and convenience.
The decline of the 1922 Civil Code’s regulatory role in the relations between or-
ganizations was particularly reflected in the fact that judgments of the court of arbi-
tration on disputes between socialist organizations made no reference to it and effec-
tively refused to be guided by it. Instead, relations between socialist organizations be-
came specially regulated by “normative” acts. Such acts took the form of separate
laws, government resolutions, and thousands of instructions from ministries and de-
partments. For example, in only one area of construction, over 1,600 legal acts were
issued.
Accordingly, there was an urgent need to change the 1922 Civil Code. Mean-
while, the opposition between the “dualists” (those who recognized two independent
fields of civil and business law) and the “monists” continued.
II. The Dualist/Monist Opposition and its Influence on Reform
A. Dualism
The dualist camp became known as the “school of business law” Its representa-
tives believed that planned and statutory relations between enterprises and state bod-
ies-as well as property relations as between enterprises-made up an integral sys-
tem. With respect to contracts, therefore, a firm belief was expressed that there was an
apparently inseparable bond between planned, statutory, and property elements, since
all contributed to the core of undivided economic relations.’ The recognition of the
integrity of vertical relations-i.e., between enterprises and the overarching state
body-and horizontal ones-i.e., at the level of enterprises-led to the inevitable
6V. Laptev, Subject and System of Economic Law (Moscow, 1969).
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conclusion that it was necessary to create, along with the 1922 Civil Code, a separate
commercial code.
Some of the commercial code supporters maintain their convictions to this day. In
a recently published work, V.I. Martemyanov advocated the independence of com-
mercial law and described it as
an aggregate of norms regulating entrepreneurial relations, other relations
firmly bound thereto, including non-commercial relations, as well as relations
in the area of state regulation of the economy aimed at securing the interests of
the State and society.7
The same book proposed the inclusion in economic law of both vertical and horizon-
tal relations which arise, for instance, between two workshops in the same plant. It is
noteworthy that a number of works appearing today speak not only of economic law,
but also of commercial law, business law, or entrepreneurial law. This does not di-
minish the fact that some of these texts consistently follow the idea of preserving the
integrity of the civil law relating to entrepreneurial activity (i.e., commercial, business,
and economic).’
B. Monism
In contrast, representatives of the monist school-among them prominent civil
lawyers S.N. Bratus, V.P. Gribanov, O.S. Ioffe, G.K. Matveyyev, E.A. Fleishits, R.O.
Khalfina, and their numerous followers-proceeded from the necessity to clearly dis-
tinguish vertical and horizontal relations, regulating the former by way of administra-
tive law and the latter by way of civil law. Therefore, the idea developed to create a
single civil code aimed at the regulation of complex horizontal property relations, i.e.,
relations based on the principle of equality regardless of whether individuals or enter-
prises participate therein. Comparing both these trends, one could finally conclude
that the co-existence of a command-style administrative system and a planned econ-
omy would aim to perfect certain legal structures. At the same time, the followers of
the civil law trend strove to revive basic traditional civil law principles with respect to
relations that could be called “entrepreneurial”.!
III. Freedom of Entrepreneurship and Supremacy of the Civil Code
The second Civil Code of the Russian Soviet Federated Socialist Republic,”0 ef-
fective in 1964, like its predecessor was based on the idea of preserving the integrity
7 V.I. Martemyanov, Comnercial Law-Course Lectures, vol. 1 (Moscow, 1994) at 1.
‘See e.g. V.P. Popondopulo & V.P Yakovleva, Conmnercial Law (St. Petersburg, 1997) at 4ff.
‘ See S. loffe, Development of Civil Law Thinking in the U.S.S.R. (Milano: Dott A. Giuffrae, 1989).
This book is to a considerable degree devoted to the difficult struggle between the supporters of
“commercial law” (economic law) and their opponents.
‘Q Vedomosti S”ezda Narodnykh Deputatov R.E i Verkhovnogo Soveta RE (1964) No. 24, item 406
[hereinafter 1964 Civil Code].
1999]
M.L BRAGINSKY- REGULATION OF ENTREPRENEURSHIP
of civil law. On its face, the 1964 Civil Code’s adoption could be understood as the
victory of monism. There were, however, special articles that dealt with obligations
arising from the acts of planning, fixed the priority of the plan to contract, and recog-
nized the concept of a legal entity only with respect to “socialist organizations”. Solu-
tions of this sort were predetermined by the respective norms of the 1936 Constitution
of the Russian Federation effective at the time. There were quite a number of provi-
sions in the 1964 Civil Code based on the principle of equality of participants in busi-
ness transactions, thus eliminating the absolute priority of socialist ownership previ-
ously known. For example, a single regime was established for the protection of pri-
vately owned property by all participants. Having indicated the existence of contracts
based on plans, the 1964 Civil Code granted enterprises the right to conclude con-
tracts (beyond the sphere of the plans) at their own discretion, including independ-
ently selected contract models-i.e., models listed in the 1964 Civil Code and other
laws-as well as innominate contracts. The expansion of the law of obligations and,
within its framework, of the law of contracts equally applicable to planned and non-
planned contracts was of considerable importance.
Though the 1964 Civil Code included typically entrepreneurial relations (e.g.
supply contracts, building construction contracts, etc.), the concepts of “entrepreneu-
rial law” or “entrepreneurs” were absolutely foreign to it. Indeed, one of these con-
cepts was used for the first time in the Federal law On Enterprises and Entrepreneu-
rial Activity” of December 25, 1990. This, in particular, recognized that independent
activity of individuals and their associations based on the initiative thereof and aimed
at receiving profit should be deemed entrepreneurial activity. The literature of that
time distinguished four characteristic features of such activity: “initiative and inde-
pendence, personal risk and liability, profit maximization, and … mandatory registra-
tion”12
Article 34 of the 1993 Constitution of the Russian Federation, adopted on De-
cember 12, 1993 (“Russian Constitution”) was expected to play a special role in the
development of the legislation. The provision states that “[e]veryone shall have the
right to freely use his or her abilities and property for entrepreneurial and any other
economic activity not prohibited by the law.” At the same time, the Russian Constitu-
tion specifically provides for only one restriction in article 34(2), namely, the prohibi-
tion of “economic activity aimed at monopolization or unfair competition” If, for in-
stance, the European Court of Justice considers the principle of freedom of entrepre-
neurship to be a general principle of law implying (i) freedom to choose one’s occu-
pation or profession; (ii) freedom from illegal competition; and (iii) the general free-
dom to perform anything not prohibited by the law, then the “above articles from the
” Vedomosti S”ezda Narodnykh Deputatov R.S.ES.R. i Verldiovnogo Soveta R.S.FS.R. (1990) No.
2 A. Popondopulo, Legal Regime of Entrepreneurship (St. Petersburg, 1991) at 15-20.
30, item 418.
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
[Vol. 44
Russian Constitution and the [new] Civil Code allow, without any reservations, the
principle of freedom of entrepreneurship.”‘”
The concept of entrepreneurial activity, which presupposes the creation-if nec-
essary-of a special legal regime, is broadly applied with respect -to new economic
conditions. Having recognized that civil legislation covers contractual and other obli-
gations, as well as other property and personal relations based on equality, freedom of
will, and private property rights of economic actors, article 2(1)(iii) of the new Civil
Code of the Russian Federation” specifically states that “[c]ivil legislation regulates
the relations between persons engaging in entrepreneurial activity.” This means,
among other things, that the fundamental principles of civil legislation are fixed by the
C.C.R.F., such as recognizing the equality of the participants in the relations regulated
by it, respect for private ownership, freedom of contract, the impermissibility of arbi-
trary interference with anyone in private affairs, the necessity of the unhindered reali-
zation of civil rights, and the insurance of judicial protection and rehabilitation of
rights that have been infringed.”
The importance of the C.C.R.F. in the regulation of entrepreneurial relations is
confirmed by reference to statistical data. Two of the three parts, which have already
been adopted, contain 1,109 articles, and most provisions, with few exceptions, state
general norms to be applied equally to relations involving any subjects of civil law,
including those engaging in entrepreneurial activity. The above approach supports the
conclusion that the “Civil Code is the Code of Entrepreneurs to the same degree as of
the citizens.”‘ It is also noteworthy that the C.C.R.F. itself refers to dozens of statutes
that mainly apply to entrepreneurial activity.
While defining the role of the C.C.R.F. as a source of law, it is important to re-
member that while it is a regular federal law, it enjoys the status of primus interpares
vis-i-vis other federal statutes. According to article 3(5) C.C.R.F., this means that in
case of contradictions between the norms contained in the C.C.R.F. and those found
in any other law, the norms of the C.C.R.F. are given priority. If a dispute arises, the
courts must apply the relevant article. That is the reason why the President of the Rus-
sian Federation repeatedly refused to sign the law adopted by the Duma-as required
by the Russian Constitution–claiming that the law was inconsistent with C.C.R.F.
principles. The only exceptions are instances where the C.C.R.F itself makes special
indication of giving priority to a certain statute. For example, article 970 C.C.R.F. in-
” G.A. Gadjiyev, Protection of Fundamental Economic Rights and Freedoms of Entrepreneurs
Abroad and in the Russian Federation (Moscow, 1995) at 65.
‘ Part 1 was enacted in 1994: Sobranie zakonodatelstva R.E (1994) No. 32, item 3301; and Part 2
was enacted in 1995: Sobranie zakonodatelstva R.E (1996) No. 5, item 410 [hereinafter C.C.R.E].
For the English-language translation, see P.B. Maggs & A.N. Zhiltsov, eds., The Civil Code of the
Russian Federation, trans. RB. Maggs & A.N. Zhiltsov (Armonk, N.Y:, M.E. Sharpe, 1997).
“Art. 1(1) C.C.R.F
‘6 MI Braginsky & V.V. Vitryansky, Law of Contracts: General Provisions (Moscow: Statut, 1997)
at 99.
1999]
M.L BRAGINSKY – REGULATION OF ENTREPRENEURSHIP
dicates that the rules of the C.C.R.F relating to types of insurance stated therein are
applicable only to the extent that statutes on these types of insurance do not provide
otherwise.
IV. Recognition of Natural and Legal Persons as Entrepreneurs
The C.C.R.F. created the prerequisite for establishing a special regime for the
purpose of entrepreneurial activity. Attaching special significance to creating such
special norms, the drafters considered it necessary to first and foremost identify the
concept in question. Article 2(1)(iii) C.C.R.F. proceeds from the position that entre-
preneurial activity is independent activity done at one’s own risk “directed at the sys-
tematic receipt of profit from use of property, sale of goods, performance of work, or
rendering of service by persons registered in this capacity by the procedure estab-
lished by a statute”
Under the C.C.R.F. both natural and legal persons may engage in entrepreneurial
activity. In this regard, the concept “entrepreneur” is used with respect to citizens in
appropriate cases. Thus, “entrepreneur” and “entrepreneurial activity” are connected
concepts. This means that natural persons may engage in entrepreneurial activity only
if they are recognized as entrepreneurs in accordance with the procedure established
by law-i.e., that they have undergone the necessary registration procedure.
A citizen attains civil law dispositive capacity and, consequently, becomes an en-
trepreneur at the age of eighteen.’7 The C.C.R.F., however, actually introduced the
concept of “emancipation” with the sole purpose of lowering the age of persons eligi-
ble to engage in entrepreneurial activity.” It is implied that the right to engage in this
activity is granted to those who reach the age of sixteen, and the consent of both par-
ents is required; but where there is none, a judgment of the court is necessary. An
emancipated person becomes a rightful entrepreneur which imports, among other
things, personal liability for transactions performed. Creditors have no right to file any
claims on the debts of emancipated persons against their parents.
The situation is different with respect to legal entities. First of all, the term “entre-
preneur” is rarely applied to them. For example, article 929(3) C.C.R.F allows the in-
surance of entrepreneurial activity only if “entrepreneurs” act as insurers.
Citizens are given an opportunity to engage in entrepreneurial activity both with
and without the formation of a legal entity. Article 23 C.C.R.F. indicates that a regis-
trar may refuse to register a citizen as an entrepreneur only if the person does not have
the necessary civil law dispositive capacity-i.e., minor age, poor health, mental dis-
order, and abuse of alcohol or drugs are all regarded as impairing civil law dispositive
capacity or having limited dispositive capacity-or if the entrepreneurial activity in
question is prohibited by law-e.g. due to a state monopoly. Therefore, a citizen
Art. 21(1) C.C.R.F.
“Art. 27 C.C.R.F.
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[Vol. 44
willing to engage in entrepreneurial activity has the option either to create a legal en-
tity-e.g. to organize a full partnership-or to exercise the same kind of activity with-
out forming a legal entity. In the latter instance, citizens act on their own behalf and
are personally liable for any debts.
As an alternative to the personal model, the C.C.R.F. provides for a special legal
entity designed for participation in entrepreneurial activity. These are “commercial
organizations” which, according to article 50(1) C.C.R.F., are “[o]rganizations seek-
ing to make profit as the basic purpose of their activity.” Commercial organizations
may be created only in the specified forms. There are seven such forms: (i) full part-
nership; (ii) limited partnership (its equivalent in other countries is “commandit” part-
nership);
(iii) joint stock company; (iv) limited liability company; (v) supplementary
liability company; (vi) state and municipal enterprise; and (vii) a production coopera-
tive. One could point to another difference in entrepreneurial activity by citizens on
the one hand, and legal entities on the other. In contrast to citizens, the C.C.R.F. al-
lows legal entities to participate in entrepreneurial activity where such entities are not
actually commercial organizations. These organizations are those that the C.C.R.F. it-
self included in the category of “non-commercial organizations”. There are, however,
some important restrictions. For example, it is necessary that such activity serves the
purpose for which the organization was created, and accurately corresponds to this
purpose.”
The C.C.R.F. names five types of non-commercial organizations: (i) consumer
cooperative; (ii) societal and religious; (iii) funds; (iv) institutions; and (v) associa-
tions and unions. In contrast to commercial organizations, the list of non-commercial
organizations could be expanded, but only by statute. An example of the statutory
extension of non-commercial organizations is seen in the Federal law On Non-
Commercial Organizations’ of January 12, 1996 which named two more types of
non-commercial organizations: (i) non-commercial partnerships; and (ii) autonomous
commercial organizations.
When the C.C.R.F. means both commercial and non-commercial organizations, in
all instances it uses the term “persons engaging in entrepreneurial activity.” Whenever
the aim is to apply the norm to legal entities which are commercial organizations, the
term “entrepreneur” may be used; specifically, in instances of special regimes estab-
lished for the commission agent in article 995 C.C.R.E, the contractor in article
721(2), and participants in the contract on joint activity in article 1041(2) C.C.R.F.
‘9 For some of the listed types of non-commercial organizations, the issue of how to exercise entre-
preneurial activity is resolved in a special way. For instance, associations and alliances as such cannot
engage in entrepreneurial activity, and an institution may receive the respective right only on condi-
tion that there is a direct indication to it in its constituting documents.
20Art. 50(3)(iii) C.C.R.F.
, Sobranie zakonodatelstva R.E (1996) No. 3, item 145.
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M.IL BRAGINSKY – REGULATION OF ENTREPRENEURSHIP
V. The Role of the Foreign Entrepreneur
Along with residents, non-residents-both legal and natural persons-may en-
gage in entrepreneurial activity. The general rule is formulated in article 2 C.C.R.F. It
is recognized that the national regime, which is rather conventional, applies to foreign
persons. It is effective regardless of the start of mutuality. Restrictions for foreign-
ers-as compared to the general regime established for citizens and legal entities of
the Russian Federation-are deemed valid only if they are introduced by a law of the
Russian Federation. This means that neither the President of the Russian Federation,
the Government, Ministry, department, or similar bodies of power and administration
have the right to introduce restrictions. In addition, restrictive norms applicable to en-
trepreneurial activity are exceptional in nature, and are not subject to broad interpre-
tation.
Certain articles of the Air Code of the Russian Federation serve as an example of
such restrictive norms. These norms provide that the creation of an aviation enterprise
in the territory of the Russian Federation with the participation of foreign capital is
allowed on condition that the foreign participatory share does not exceed 49% of the
charter capital. In addition, according to article 16 of the Air Code, the top manager of
the enterprise must be a citizen of the Russian Federation, and the proportion of for-
eign citizens in the management body of the joint enterprise must not exceed one-
third of the total. Article 63(5) of the Air Code indicates the kinds of activity in which
a foreign enterprise-whether an international agency or a foreign individual entre-
preneur-is prohibited from pursuing in the territory of the Russian Federation.
In certain instances, restrictions on entrepreneurial activity with respect to for-
eigners may be based on international acts. For example, the agreement between the
Russian Federation and the United States “On Encouragement and Mutual Protection
of Capital Investments” (not yet ratified) provides that each party is entitled to estab-
lish or retain exemptions of a restrictive nature from the national treatment of foreign-
ers in certain fields or areas of activity. The list of such kinds of restrictions included
seventeen and sixteen items for the Russian Federation and the United States, respec-
tively.
Exemptions from the national treatment of foreigners may not only be restrictive,
but also beneficial. The Federal law On Foreign Investment of July 4, 1991 stipulates
that such foreign investments are not subject to nationalization and cannot be subject
to seizure or confiscation, with the exception of those rare instances where such
measures are taken for the public benefit. It is specifically mentioned, in article 7 of
‘2 Sobranie zakonodatelstva R.E (1997) No. 12, item 1383 [hereinafter Air Code].
?’Sobranie zakonodatelstva R.E (1991) No. 29, item 1008.
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the Federal law On Foreign Investment, that in the event of nationalization or seizure,
the foreign investors shall be entitled to fair and sufficient compensation.’
As distinct from restrictions, benefits for foreign participants in entrepreneurial
activity may be established not only by statute, but also by other means. There is, for
instance, the Edict of the President of the Russian Federation “On Benefits on the
Payment of Import Customs Duty,'” as well as the value added tax with respect to
goods imported by foreign investors as a contribution to the charter capital of enter-
prises with foreign investments.
VI. The Legislative Treatment of Entrepreneurship
The norms comprising entrepreneurial legislation primarily cover issues related to
legal entities, the right of ownership, and contracts. Before the new civil legislation
was adopted, the principle of special legal capacity was applied to all types of legal
entities. The essence was that legal entities could complete only those transactions
which would conform to the purposes set out in the legal entity’s constituting docu-
ments. The C.C.R.F. retained this principle with respect to non-commercial organiza-
tions, and state and municipal enterprises. In contrast, commercial organization-type
legal entities enjoy “general legal capacity” which means that they may engage in any
kind of activity not prohibited by law-including entrepreneurial activity-unless
their constituting documents impose certain limitations. According to article 174
C.C.R.F., contracts concluded without taking account of such limitations-e.g. when
the charter contains a prohibition to perform these particular kinds of transactions-
may be deemed invalid only if it is proven that the other party to the transaction knew,
or clearly should have known, about these limitations. Otherwise, deviation from the
constituting documents in this sense does not invalidate the transaction.
There is another exception to the rule of “general legal capacity”. This is that
certain types of activity require a license that gives the legal entity the right to exercise
entrepreneurial activity. The specification of the C.C.R.E is that only the law may es-
tablish the kinds of activity which require a license. Instructions on introducing li-
censing for certain kinds of activity contained in decrees of the Russian Federation
have no legal validity and must not be enforced by courts. According to article 173
C.C.R.F, a contract executed in violation of the requirement for mandatory licensing
is deemed to be beyond the legal capacity of the unlicensed legal person, and may be
deemed invalid on the suit of counter-agents themselves, as well as by the state body
whose functions include control and supervision of the activity of the legal entity in
question.
‘ See M. Boguslavsky, Foreign Investments: Legal Regulation (Moscow, 1996) at 77ff.; and N.G.
Doronina & N.G. Semilyutina, Legal Regulation of Foreign Investments in Russia and Abroad (Mos-
cow, 1993).
‘ Presidential Edict No. 40 (27 September 1993) SobranieAktov R.E (1993), item 3740.
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M.IL BRAGINSKY – REGULATION OF ENTREPRENEURSHIP
Another C.C.R.F. innovation is to render irrelevant the previous limitation on
levying execution on the debts of a legal entity against certain types of property be-
longing to it. Specifically, the Code of Civil Procedure of the Russian Federation2′
prohibited levying execution against real estate belonging to “socialist organizations”.
For enterprises, this limitation was expanded by a prohibition on levying execution
against the property that was necessary for the normal operation of the enterprise-
e.g. raw materials or equipment belonging to a debtor plant. The C.C.R.F.-following
the laws On Ownership of the U.S.S.R. of March 6, 19907 and of the Russian Fed-
eration of December 24, 1990–ensured the interests of creditors by granting them
the possibility of levying execution against any property belonging to a legal entity.
The Federal law On the Execution Procedure’ of July 21, 1997 established the proc-
ess for levying execution against the property of a debtor to execute the judgment of a
court. In particular, it provides that execution must be levied as first priority against
the monetary funds of the debtor (in rubles and foreign currency) and, if these are in-
sufficient, against the rest of the debtor’s property with the exception of the property
withdrawn from commerce which cannot be sold, exchanged, mortgaged, etc. The
debtor is granted the right to specify which property should be sold first, and the sale
is carried out through an auction.
The Russian Federation, subjects of the Russian Federation, and municipal enti-
ties act in relations regulated by civil law on an equal footing with citizens and legal
entities. In all such cases, norms are applied to them which determine the procedure
for participation in the civil law relations of legal entities, unless the law provides oth-
erwise. One such law refers to liability for the debts of the aforementioned actors. Ar-
ticle 126 C.C.R.F. provides that levying execution on land and other natural resources
belonging to the Russian Federation, subjects of the Russian Federation, and munici-
pal entities is allowed only if it is specifically provided for by law. There is no such
provision in the current legislation, therefore, there should be no possibility of levying
execution against natural resources belonging to the aforementioned subjects.
VII. Liability
The liability of a legal entity is, according to the general rule, exclusive.’ This
means that the legal entity is liable for its own obligations. Yet the C.C.R.F. allows for
certain situations where the liability of a legal entity may be subsidiarily placed on
26 Vedomosti S”ezda Narodnykh Deputatov RE i Verkhovnogo Soveta R.E (1964) No. 24, item 407,
as am. by Sobranie zakonodatelstva R.E (1995) No. 49, item 4696.
2′ Vedomosti S”ezda Narodnykh Deputatov S.S.S.R. i Verkhovnogo Soveta S.S.S.R. (1990) No. 11,
item 164.
28 Vedomosti S”ezda Narodnykh Deputatov R.S.ES.R. i Verkhovnogo Soveta R.S.ES.R. (1991) No.
30, item 418. See also M.I. Braginski & A.A. Rubanov, The Law on Ownership in the US.S.R. (Mos-
cow, 1991) at 69-75.
‘9 Sobranie zakonodatelstva R.E (1997) No. 30, item 3591.
30 Art. 56 C.C.R.E
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other persons. Such liability usually arises from the specific nature of the legal entity.
For instance, the participants in full partnership and full partners in the limited liabil-
ity partnership (i.e., commandit partnership) bear unlimited liability for all their prop-
erty in instances when the partnership itself does not have sufficient funds to settle its
accounts with creditors.” Similarly, the owner of the institution is liable for the debts
of the institution lacking monetary funds.
The C.C.R.F establishes a general rule whereby principal and subsidiary compa-
nies bear joint and several liability when the subsidiary has executed mandatory in-
structions on behalf of the principal.’ In the event of insolvency due to the directives
of the parent company (or partnership), the latter shall be liable for the debts of the
subsidiary company.” However, article 6 of the Federal law On Joint Stock Compa-
nies’ establishes a somewhat different rule. It provides that insolvency shall be
deemed to have occurred through the fault of the parent company only if the latter ex-
ercised its power to instruct the subsidiary to act in a certain manner, “having been
clearly aware that the insolvency of the subsidiary would arise from these actions.”
There is a considerable difference between these two regimes. The law recognizes
as a condition for liability of the principal not just culpability, but culpability with ill
intent. Given the priority of the C.C.R.E, when considering the claims of creditors a
court would have to go beyond the boundaries stated in the law. In other words, it will
have to impose liability for the debts of the subsidiary on the principal company even
when the fault of the principal company takes the form of mere negligence.
The Federal law On Insolvency (Bankruptcy)” of January 8, 1998 contains nu-
merous innovations which aim to assist a legal entity in a difficult financial situation;
and if bankruptcy proves to be inevitable, to provide maximum protection to the
creditors of the bankrupt entity. The new law generalized the applicable practices un-
der the previous Federal law On Insolvency (Bankruptcy) of Enterprises’ of Novem-
ber 19, 1992.
VIII. Private Ownership
Article 8(2) of the Russian Constitution declares that in the Russian Federation,
private, state, municipal, and other forms of ownership are recognized and equally
protected. It is significant that this norm not only mentions private ownership which
“Arts. 75,82(5) C.C.R.F
“Art. 105(2)(ii) C.C.R.F
‘Art. 105(2)(iii) C.C.R.F
Sobranie zakonodatelstva R.E (1992) No. 10, item 133.
“Sobranie zakonodatelstva R.E (1998) No. 2, item 222.
“Vedonosti S”ezda Narodnykh Deputatov R.E i Verkhovnogo Soveta R.E (1993) No. 1, item 6.
This law takes into account contemporary legislation dealing with bankruptcy proceedings, both con-
tinental and Anglo-American. See V. Vitryansky, “Insolvency and Bankruptcy Law Reform in the
Russian Federation” (1999) 44 McGill L.J. 409 (in this same issue).
1999]
M.IL BRAGINSKY – REGULATION OF ENTREPRENEURSHIP
397
was rejected by the 1936 Constitution of the Russian Federation, but also places it
first on the list of forms of ownership-ahead of state and municipal ownership. Arti-
cle 212 C.C.R.F. adopts the same order of priority. In addition, article 213 C.C.R.F.
explains the content of private ownership as the ownership by natural and legal per-
sons. The latter are understood to be economic companies and partnerships, as well as
cooperatives, i.e., those who are the key participants in entrepreneurial relations. One
of the conditions for the development of commercial relations established by the
C.C.R.F. is the presumption that both natural and legal persons are equally entitled to
own any object and in any quantity. Exceptions to this rule may be established only by
law.
The C.C.R.F. specifically singles out land among the objects of the right of private
ownership, which since the Revolution fell within exclusive state ownership. Chapter
17 of the C.C.R.F.-which deals with the regulation of the procedure for acquisition,
execution, and termination of property rights to land-will become effective only af-
ter the new Land Code of the Russian Federation37 is put into effect. The Land Code
has not yet gone through the adoption procedure due to differences in opinion on a
number of issues fundamental to the regulation of land rights.
One should bear in mind, however, that prior to the C.C.R.F., article 9 of the Rus-
sian Constitution recognized that land and other natural resources may be privately
owned. In connection with this, a number of special acts were issued which-in ac-
cordance with the Russian Constitution-determined the procedure for the execution
of respective rights by their holders. Some examples are the Edict by the Russian
Federation President of November 26, 1997 “On the Sale to Citizens and Legal Enti-
ties of Land Plots Designated for Development of Land Plots Located in the Territo-
ries of Urban and Rural Residential Centers or Rights to Lease Them.’3 There is also
the Decree of the Russian Federation President of January 5, 1998, which approved
the “Procedure for Holding Sales (Auctions and Tenders) on Sale to Citizens and Le-
gal Entities of Land Parcels Located in the Territories of Urban and Rural Residential
Centers, or Rights of their Lease.”” Moreover, in conformity with article 72 of the
Russian Constitution, the jurisdiction to regulate possession, use, and disposition of
land, sub-soil, water, and other natural resources is held concurrently by the Russian
Federation and subjects of the Russian Federation. Subjects of the Russian Federation
are entitled to issue any acts which do not run contrary to Federal laws. Taking ad-
vantage of the right granted to them, some subjects of the Russian Federation inde-
pendently adopted land codes primarily regulating issues related to the private owner-
ship of land.
Fundamental property rights to land are fixed in article 260 C.C.R.F., which es-
tablishes that persons owning land are entitled to sell it, make a gift of it, mortgage or
” Vedomosti S”ezda Narodnykh Deputatov R.S.ES.R. i Verkhovnogo Soveta R.S.ES.R. (1991) No.
22, item 768 [hereinafter Land Code].
38Sobranie zakonodatelstva R.E (1997) No. 48, item 5546.
39Sobranie zakonodatelstva R.E (1998) No. 2, item 262.
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lease it, or dispose of it in any other way. Article 260(1) C.C.R.F specifically points
out that the owner has such rights “to the extent that the respective land is not ex-
cluded from alienability or limited in alienability on the basis of a statute”
The norms to be adopted-which are aimed at determining who will possess
land, which lands specifically, in what amounts, and by what right-are the subject of
ongoing discussions. The unresolved issues relating to the right of ownership of land
has been one of the obstacles to adopting the Federal law On Pledge,’ despite the fact
that articles 334 to 358 C.C.R.F recognize the possibility of using this kind of pledge.
Regardless of how these issues related to land possession will be resolved, the
Federal law On State Registration of Rights to Imnovables and Transactions There-
with,” adopted on June 21, 1997 plays an important role in normalizing land relations
from the aspect of entrepreneurial law. This law provides, among other things, for the
creation of a single state register for the whole federation.
IX. State Ownership
The Federal law On Subsoil’2 of March 3, 1995 recognizes the subsoil within the
territorial borders of Russia as exclusively state-owned property. At the same time, the
C.C.R.F. provides for the possibility of alienating rights of use in subsoil. The right in
question includes the possibility of prospecting and extracting mineral resources. Per-
sons receiving a license for this purpose, including subjects of entrepreneurial activity
whether legal or natural foreign persons, become owners of the raw materials they
extract.
The federal law On Product Sharing Agreements;” of December 30, 1995 regu-
lates relations which arise in the process of investing-including investment of for-
eign capital-in areas related to the use of subsoil. This covers searching, prospecting,
and extraction of mineral resources in the territory of the Russian Federation, the con-
tinental shelf and/or within the exclusive economic zone of the Russian Federation.
The agreement envisioned by the statute serves as a legal basis for forming relations
in the process of this activity, and is signed by the Russian Federation represented by
its Government, or an executive body of a subject of the Russian Federation in whose
territory the respective subsoil is located. The other party to the agreement is either a
citizen or legal entity, and is Russian or foreign. The idea of the agreement is to des-
ignate a part of the subsoil for search, prospecting, and extraction of mineral re-
sources, and to determine the proportion in which the extracted product will be di-
vided between the parties. The share of production owed to the investor belongs to it
by right of ownership and, in compliance with the terms of the agreement and the es-
tablished procedure, may be taken by the investor beyond the customs territory of the
Federal law No. 2872-1 of 29 May 1992.
41 Sobranie zakonodatelstva R.E (1997) No. 30, item 3594.
42 Sobranie zakonodatelstva R.E (1995) No. 10, item 823.
‘ Sobranie zakonodatelstva R.E (1995) No. 1, item 18.
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M. L BRAGINSKY – REGULATION OF ENTREPRENEURSHIP
Russian Federation. A special regime is established with respect to information re-
ceived by the investor. Such information belongs entirely to the State, but may be used
freely and without compensation by the investors only in compliance with confidenti-
ality rules. Such information is deemed a commercial secret, therefore the investor is
charged with the obligation to compensate for damages sustained by the State through
the leakage of information.”
X. Rights of Economic Management and Operative Administration
In the list of recognized property rights, the C.C.R.F. names, along with those
common to the legislation of all countries (i.e., servitude, rights of possession and use
of land) and in addition to those which are specific to current Russian legislation, a
“right of economic management” and a “right of operative administration”‘” In the
first instance, the Russian Federation, subjects of the Federation, or municipal entities
transfer part of their property into the possession, use, and disposition of unitary en-
terprises established by them while retaining the right of ownership. Such enterprises
act in their own name and bear independent liability for their actions. Creditors of a
unitary enterprise so managed are deprived of the possibility to file claims against the
enterprise’s owner. Therefore, an important guarantee for creditors is the provision
that the owner cannot withdraw the property belonging to the unitary enterprise by
right of economic management. Those who enter into entrepreneurial relations with a
unitary enterprise should bear in mind that such an enterprise is limited in its actions
only with respect to the disposition of the property belonging to it by right of eco-
nomic management. The enterprise may sell such property, make a contribution to the
charter capital (i.e., participatory share), or pass the property into pledge only with the
consent of the owner. Concluding a contract with respect to real estate without having
received the consent of the owner is sufficient grounds for deeming the contract inva-
-lid with all the unfavourable consequences.
The right of operative administration-held by institutions and treasury enter-
prises-proves to be more limited than that of economic management. For instance,
those holding the former right are not able to independently dispose of property-
whether movable or immovable-transferred to them.’ A treasury enterprise, as an ex-
ceptional case, is not allowed to dispose of the materials it produces. Apart from that,
the owner is able to withdraw the property fixed to the institution and treasury enter-
prises in instances when the owner finds this property excessive for them, they do not
use this property, or they do not use it in accordance with its designated purpose. In
granting such a right to the owner, the interests of creditors would not suffer, since
their recognized right is to file a claim with respect to the obligations not satisfied ei-
ther by an institution or a treasury enterprise against the owner itself.
“S.A. Sosna, Commentaries to the Federal law On Product Sharing Agreements (Moscow, 1997);
and A.A. Konoplyanik & M.A. Subbotin, Litigation on Sharing (Moscow, 1996).
4′ C. 19 of the C.C.R.F.
” Art. 297(1)(i) C.C.R.F.
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The institution’s or treasury enterprise’s founding documents may grant them the
right to engage in entrepreneurial activity as an ancillary undertaking. All of the prop-
erty which the institution acquires with the profits received from such an activity is
subject to a more beneficial regime identical to economic management. For that rea-
son, when entering into a relationship with the founders-such as purchasing property
from them-it is necessary to first and foremost establish the source of its purchase. If
it turns out that the property was purchased at the expense of the owner itself (i.e., the
funds having been taken from the budget), the transaction shall be deemed invalid,
unless the owner expresses its consent in advance or approves the transaction retroac-
tively.
Xl. Specific Features of the Entrepreneurial Contract
The C.C.R.F. creates the necessary conditions for the development of freedom of
contract for entrepreneurial relations. Article 421 C.C.R.F. provides for the freedom
of participants to resolve issues with respect to concluding a contract, choosing the
form of a contract, and setting the terms of the contract at their own discretion. Ap-
propriate conditions were established by limiting the effect of imperative norms and
broadening the use of dispositive and optional regulations.
The 1964 Civil Code-within the framework of the general contractual regime-
distinguished a special regime aimed at entrepreneurs or others who conclude a con-
tract in connection with their engagement in industry. Such differentiation reflects the
specifics of entrepreneurial activity as determined by contracts.
Certain norms relate to the risky nature of the activity. For instance, the grounds
for ensuring the liability of the debtor for the failure to execute or the improper exe-
cution of obligations deserves special mention. The Russian legislation traditionally
follows the Roman principles of liability, recognizing the fault of the debtor as one of
the inherent grounds of liability for violating one’s obligations. The fault principle is
reflected in Article 68 of the Collection of Laws of the Russian Empire. Formulated in
a more expanded manner, the principle was included in article 123 of the pre-
revolutionary Civil Code. There were also similar norms included in article 118 of the
1922 Civil Code and article 222 of the 1964 Civil Code. This general principle was
also preserved in article 401 C.C.R.F The dispositive norm of the C.C.R.F. provides
that “[a] person who has not performed an obligation or who has performed it in an
improper manner shall bear liability in case of fault” This formulation is significant
since the risk of accidental violation of an obligation by the debtor falls on the credi-
tor.
However, upon further analysis of article 401 C.C.R.R, it becomes clear the result
is a solution directly opposite to that described. The norm in article 401 C.C.R.F is
applied to a situation where a person is to execute an obligation related to his en-
gagement in entrepreneurial activity. Such a person shall bear responsibility not only
for being at fault, but also when there is no fault of his own. The situation described
only contemplates relieving the debtor of the liability for the failure to execute or for
the improper execution of the obligation due to superior force which-under the cir-
cumstances-was extraordinary and unpreventable. The legislator specified that ab-
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M.L BRAGINSKY – REGULATION OF ENTREPRENEURSHIP
sence of goods in the market necessary for the execution of the obligations, lack of
money, as well as failed obligations by one’s counter agents-e.g. malfunction of
equipment of the contracting supplier of raw materials who exercises the construction,
or of an enterprise or transport organization that was to deliver the cargo, etc.-cannot
be considered superior force.’7 Thus, the risk of accidental default or improper execu-
tion of the obligation is shifted from the creditor to the debtor who concluded the
contract in connection with the entrepreneurial activity exercised by it.
Another norm which leads to the special protection of creditor interests relates to
the nature of liability. Of all possible kinds of debtor liability-i.e., subsidiary, joint
and several, and proportionate share-joint and several liability best responds to the
interests of the creditor since there is a possibility to file claims against any debtor and
for any amount up to the total amount of the debt. However, article 322 C.C.R.F. is an
exception. As a general rule, liability of co-debtors is expected to be joint and several
only when established by law or by contract. Nevertheless, if the obligation relates to
their entrepreneurial activity, co-debtors are expected to bear joint and several liability.
Some of the principles which apply to any activity regulated by the civil law be-
come particularly significant to entrepreneurial contracts. This serves as an incentive
to make the regime for this category of contracts more rigid.
One of these principles is the protection of the weaker contracting party. The ef-
fect of such a principle can be illustrated, for instance, by the norms which invalidate
contracts concluded by way of fraud, threat, violence, etc. With respect to entrepre-
neurial relations, the protection of the weaker party is provided for by a number of
special norms, i.e., article 426 C.C.R.R: “Public Contracts” which appeared for the
first time in the C.C.R.F. These differ from all other types of contracts in that a party
to the contract is a commercial organization which by the very nature of its activity is
designated to sell goods, execute works, and render services to anyone who applies
for them-e.g. a drug store, hotel, hospital, power company, railway, etc. For the
benefit of the consumer of such goods, works, and services, article 421 C.C.R.F. es-
tablishes significant exceptions dealing with freedom of contract. The consumer is
recognized as having the right to file claims in court in the event that the commercial
organization deviates from this rule, and to oblige it to carry out a contract. Since the
price of goods and other terms of the public contract should be standardized (exemp-
tions are established either by statute or any other legal act), terms which are of a dis-
criminatory nature are deemed void. A broader variety of measures aimed at the pro-
tection of the weaker party are provided for by the Federal law On Protection of the
Rights of Consumers” of December 5, 1995 for cases when a citizen acts as a con-
sumer.
Another example is compensation for obligations performed under a contract.
Though article 423 C.C.R.F. presumes the compensatory nature of concluded con-
4Art. 401(3) C.C.R.F
48Sobranie zakonodatelstva R.E (1996) No. 3, item 140.
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tracts, it is permissible to conclude uncompensated contracts in instances governed by
statute, other legal acts, or the content and the nature of contracts. The parties to the
contract may determine between themselves whether the obligations under the con-
tract will be compensated or uncompensated. In this respect, the law allows the parties
to choose between the purchase and sale contract and the contract of gift, between
compensated and uncompensated obligations, between an interest-bearing and inter-
est-free loans, etc. A different procedure is established for entrepreneurial contracts.
In contrast to ordinary contracts-where the compensatory or non-compensatory
nature of relations influences only the interests of counter-agents-in entrepreneurial
contacts, the uncompensated provision of goods and services may considerably influ-
ence the interests of third parties (e.g. shareholders, in the case of a joint stock com-
pany where they are participants, creditors, and parties to the contract). The C.C.R.F.
specifically prohibits the performance of uncompensated transactions in an entrepre-
neurial context. For instance, article 574(4) C.C.R.F excludes the possibility of a gift
(with the exception of ordinary gifts not exceeding the maximum value established by
the C.C.R.E) in relation to commercial organizations. Article 690(2) C.C.R.F does
not allow the transfer by a commercial organization of property into uncompensated
use to persons who are its founders, participants, top managers, and members of its
management or controlling bodies. Article 809(3) C.C.R.F contains an assumption
that an interest-free loan contract is not valid in cases where at least one of the parties
is engaged in entrepreneurial activity.
Special norms relate to another inherent feature of entrepreneurial activity: profit
maximization. By way of illustration, consider the possibility of executing an obliga-
tion ahead of time. Obligations beyond the boundaries of entrepreneurial activity arise
by common law for the benefit of the debtor. This gives grounds to believe that the
creditor is interested in the earliest termination of the obligation. This assumption is
the basis for article 315 C.C.R.E which fixes the right of the debtor to execute the ob-
ligation ahead of time, unless a statute, other legal acts, or the terms of the obligation
provide otherwise. The situation differs in the case of an obligation related to the en-
trepreneurial activity of the parties. There are grounds to believe that the creditor is
primarily interested in the performance of the obligation no earlier than a specified
time. Any compensated obligation may serve as an example. For instance, an obliga-
tion based on the contract of an interest-bearing loan or lease. Early execution of an
obligation by the borrower in the first case, and of a lessee in the second case, leads to
the situation where a lender–e.g. a bank or another credit institution-or a lessor will
be losing the interest in the first instance, and the rent in the second instance. For this
reason, an opposite principle is effective in entrepreneurial relations: execution of ob-
ligations before time is allowed only if provided by law, another legal act, or follows
from usual business practices or the nature of the obligation. At the same time, a spe-
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M.IL BRAGINSKY – REGULATION OF ENTREPRENEURSHIP
cial imperative form allows repayment of debt issued with interest before time only
with the consent of the lender.”
A second example is also useful. One of the most efficient ways to secure the
execution of an obligation is to give the creditor the right to retain a thing belonging to
the debtor until the latter executes its obligation. Such a limitation, however, is not ef-
fective when the parties act as entrepreneurs.
Another feature specific to entrepreneurial contracts is the unilateral refusal to
execute obligations. As a rule, this is allowed only in instances provided for by stat-
ute. At the same time, for a contractual obligation related to entrepreneurial activity
exercised by counter-agents, the possibility of unilateral refusal may be established in
the contract itself according to article 310 C.C.R.F. Alternatively, if the general norm
provides that the commission agent should follow the instructions given by the com-
mission principal-and may deviate from them only with the consent of the latter-
the commissioner acting as an entrepreneur may be granted a right in the contract
itself to deviate from the instructions of the commission principal without any prior ap-
proval according to article 995(1) C.C.R.F. Finally, an inherent feature of a represen-
tative is the impossibility of a person to perform a transaction simultaneously acting
as the representative of both parties to the transaction-it is impossible to act as repre-
sentative of a seller and a buyer of a thing at the same time. The C.C.R.F, however,
has allowed commercial representation for the first time, thereby allowing double rep-
resentation. This may be possible when a commercial representative is a person who
permanently and independently acts as a representative on behalf of entrepreneurs,
and the transaction in question is concluded in the sphere of entrepreneurial activity.
The legislator treats differently the use of standard forms when ordinary and en-
trepreneurial transactions are concluded. In the first instance, guided by the principle
of freedom of contract, the adhering party is protected by extending to it-in article
428 C.C.R.F: “The Contract of Adhesion”-the right to demand that the contract be
cancelled or amended. This right is exercisable where the contract deprives the party
of those rights which are usually provided by such kinds of contracts, contains a bur-
densome condition, or excludes or decreases the liability of the non-adhering party. To
cancel or amend the contract in such cases, the party will have to prove that if it had
an opportunity to participate in the negotiation of the contract, it would not have con-
cluded it (proceeding from its reasonably understood interests). Thus, the legislator
treats standard forms with a certain caution. Things change, however, if the party ad-
heres to the contract within the framework of entrepreneurial activity. It is not enough
to refer to the violation of interest. Mindful of the fact that for entrepreneurial con-
tracts a standard form is the normal way to conclude contracts, the legislator makes
the stability of the contract its top priority. The party adhering to the contract can, in
similar cases, attain the cancellation or amendment of the contract only if it proves
4″ Art. 810(2) C.C.R.F.
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[Vol. 44
that it did not know and could not have known the terms on which the contract was
signed.”
Conclusion: Classification of Entrepreneurial Contracts
Contracts are classified at two levels under the C.C.R.F., and about thirty types of
contracts are described. Within the framework of a respective type, a certain number
of contracts are regulated and categorized according to their nature.
Two types of entrepreneurial contracts emerge in this system. In certain instances
they are independent types of contracts which may be used only when at least one of
the parties is a commercial organization, an individual entrepreneur, or a legal entity
in general for whom participation in the contract of this type is connected to the exe-
cution of entrepreneurial activity. This category includes contracts of factoring, bank
deposit, bank account, insurance, trust management, commercial concession, and
contracts of agency.
All other types of contracts specified in the C.C.R.E are of a general nature.
There are certain contracts among them which the legislator found possible to catego-
rize as special types. The basic feature is the specific membership of participants-
i.e., persons acting in different ways who exercise entrepreneurial activity under the
contract. This mainly covers contracts of retail purchase and sale, contracts of supply
(particularly supply for state purposes), procurement and power supply, renting and
leasing of an enterprise, contracts for everyday services, construction contracts, con-
tractual works for state needs, warehouse storage, storage in a pawnshop, custody in a
bank, storage in a coatcheck, storage in a hotel, etc. In such cases, the C.C.R.F, as a
rule, contains uniform norms for all types of contracts that are also applied to those
kinds of entrepreneurial contracts falling into a particular category. For instance,
Chapter 30 of the C.C.R.F.: “Purchase and Sale”, contains a special section entitled
“General Provisions on Purchase and Sale,”‘ the articles of which may-unless they
contradict special articles of supply, retail purchase and sale, etc.-be added to them.
Thus, the special regime of entrepreneurial contracts consists of three layers: the
norms which specifically regulate general issues under contracts, the norms dealing
with a respective contractual type, and the norms relating to a specific kind of con-
tract. But one thing is for certain, the content and application of these rules must be
flexible enough to accommodate the many changes taking effect in the Russian Fed-
eration.
Art. 428(3) C.C.R.F.
” Arts. 454-91 C.C.RF.
1999]
M.L BRAGINSKY – REGULATION OF ENTREPRENEURSHIP
405
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