Dominant partner of limited liability company will not pay Social Security contributions

As a rule, partners of limited liability companies are not subject to mandatory social insurance. The exceptions are single-person entities. ZUS has so far taken the position that a company in which one of the partners is the dominant entity should be treated as a sole proprietorship, and the partner with the majority shareholding should pay social contributions. According to the authority, a partner with, for example, a 1% shareholding is an illusory shareholder. The positions of the courts in this regard were also not uniform. The dispute finally reached the Supreme Court, which issued an important resolution for limited liability company shareholders.

SN: a company with a dominant partner is not a sole proprietorship

On 02/21/2024, the Supreme Court, sitting in a three-judge panel, adopted a resolution (III UZP 8/23) in which it unequivocally indicated that a partner in a two-person limited liability company holding 99 percent of the shares is not subject to social security. The resolution challenged the previous position of the Social Security Administration, which claimed that a partner holding 99 percent of the shares in a limited liability company should be considered the sole shareholder of the limited liability company subject to social insurance.

The Commercial Companies Code clearly defines the concept of a sole proprietorship. The Supreme Court’s resolution showed that there should not be situations where an existing definition of a sole proprietorship is disregarded by the Social Security Administration and a new one is created to issue a decision unfavorable to entrepreneurs.