In 1993, Russia used the legal business form known as a "limited liability partnership" (TOO), which was later replaced by the more familiar limited liability company (OOO).
What was a TOO?
A limited liability partnership was a type of business entity created by agreement among legal entities or individuals, formed by pooling their contributions in cash or in kind. A TOO had a charter fund divided into shares, the size of which was set out in its founding documents.
The key feature of a TOO was that its members were liable for the entity's obligations only up to the amount of their own contribution. This made the form attractive to entrepreneurs unwilling to risk all of their property.
The management structure of a TOO
A partnership's management was organized as follows:
- The supreme governing body — the meeting of members (or the representatives they appointed)
- The executive body — a board of directors or a director
- The oversight body — an audit commission
When deciding matters at a members' meeting, the number of votes was proportional to the size of each member's share in the charter fund. Upon paying for their share, a member was issued a share certificate, which was not a security and could not be sold to another person without the partnership's permission.
Advantages of a TOO
Compared to joint-stock companies, a TOO offered a number of significant advantages:
- Only two members were needed to establish one (versus five to seven for a joint-stock company)
- Management could be handled by a single person
- There was no requirement to publish annual reports
- Changes to the charter and capital did not need to be published
- Less government oversight of formation and operations
- In some cases, favorable tax treatment of profits
Limitations of a TOO
The main obstacle to large-scale operations was the ban on issuing securities. This limited the ability to raise capital and expand a business.
Historical context
The TOO appeared in Russia in 1922, with the adoption of the RSFSR Civil Code. The form was especially relevant during the NEP period, when the state encouraged private enterprise within limited bounds.
In the early 1990s, during the active formation of a market economy, the TOO became a popular business form among aspiring entrepreneurs, thanks to the relative simplicity of registration and management.
The transition from TOO to OOO
The TOO ceased to exist as a legal form in December 1994, following the publication of Part One of the new Civil Code of the Russian Federation. In place of limited liability partnerships came limited liability companies (OOO).
Key differences between an OOO and a TOO:
| Criterion | TOO | OOO |
|---|---|---|
| Share certificates | Issued, not classified as securities | Not issued; shares are fixed in the charter |
| Liability in bankruptcy | Limited to the member's contribution | Secondary liability possible |
| Governing body | Board of directors or a director | A sole executive body (general director) |
| Profit distribution | Proportional to shares | May be disproportionate, per the charter |
What this means for understanding the era
Registering a TOO in 1993 reflects the spirit of the time — a period of intense formation of new economic relationships, when entrepreneurs were learning legal business forms unfamiliar to the Soviet mindset. The relative simplicity of setting up a TOO made the form especially attractive to those taking their first steps into private enterprise.
Limited liability partnerships existed under Russian law for a little over two years after the collapse of the USSR, but managed to become an important tool in building a market economy during the transitional period.