Closed joint-stock company: features of a legal entity

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A closed joint stock company (CJSC) is one of the forms of business organization that unites participants on the basis of ownership of shares. The development of this form has undergone significant changes since its inception. Since 2014, this form no longer exists. Since that period, all joint-stock companies that sell their shares in a limited way are called non-public. Existing joint-stock companies are required to rename themselves into non-public joint-stock companies upon the first amendment of the articles of association. What else you need to know about this form of joint-stock company, we will tell you in this article.

Features of CJSC

A closed joint stock company is an important tool for private entrepreneurs and investors seeking to invest their funds in promising projects. Prior to the reorganization, CJSC companies operated in the absence of clear regulations that regulated their activities, which led to uncertainty in the management and control of companies.

As we noted, since 2014, legislation has changed in Russia, which has changed the form of ownership and management. The changes affected closed joint–stock companies (CJSC), making them obsolete and replacing them with a new form – non-public joint-stock companies.

Advantages and disadvantages of CJSC

Among the advantages of the CJSC are the following:

• Limited liability. The participants of the CJSC are responsible only within the limits of their contribution to the authorized capital, which ensured the limitation of risks and the protection of personal property.
• Attractiveness for investors. CJSC companies attract investors more easily than other forms of organizations, as they provide an opportunity to own a share in the company in full and on equal terms with other shareholders. Investors may not be afraid that third parties will gain access to the management of the company and shares, as this is impossible. The form of the company determines that shares are not sold on open markets, which allows existing shareholders not to worry about the further development of the company when making decisions.
• Flexibility in management. The internal structure of a joint-stock company provides more flexible management and decision-making compared to more complex forms such as public joint-stock companies.
• Confidentiality. CJSC companies are usually not subject to public disclosure of information about their activities, which ensures a higher level of confidentiality for participants.

Among the disadvantages of CJSC are:

• Limited capital. The possibility of raising capital for the CJSC is limited, since the shares cannot be publicly sold.
• The number of shareholders is limited.
• Limited liquidity of shares. CJSC participants may face the problem of selling their shares due to the lack of permission to sell to third parties by the charter or by other participants, which makes it difficult for them to exit the company.
• Limited access to resources. The lack of a public offering of shares may limit access to additional resources and capital, especially during periods of business expansion.
• Limited transparency. Non-public joint-stock companies face problems in ensuring a high level of transparency, since reporting and disclosure requirements were usually less stringent than public companies.
• Difficulties in attracting qualified specialists. The lack of public stock trading and limited capital may make it difficult to attract qualified specialists whose interests were related to the possibility of participating in the company’s growth through the acquisition of shares.

The structure of a closed joint-stock company

The structure of the CJSC was an organizational configuration characterizing the internal relations and management mechanisms in the company. In CJSC, the main elements of the structure are shareholders and management bodies.

Shareholders own shares that represent a share in the authorized capital. The authorized capital is formed from the amount of funds contributed by the shareholders. Ownership of shares provides shareholders with the right to participate in decision-making and receive a share of profits in accordance with their share in the authorized capital.

The management bodies of the CJSC include:

• General Meeting of Shareholders. The highest management body that makes key strategic decisions.
• The Board of Directors (if provided for by the articles of association). Exercises control over the company’s activities.
• The CEO, who represents the executive body.

The rights of shareholders of a closed joint stock company

• Receive a portion of the profit. Usually, profits are distributed in the form of dividends, which are paid to shareholders in cash.
• Participate in the general meeting of Shareholders. This gives shareholders the opportunity to express their opinions, vote on issues on the agenda and elect the company’s management bodies.
• Receive information. This applies to annual reporting.
• Appeal against the decisions of the governing bodies. Usually, judicial proceedings or other dispute resolution mechanisms are used for this purpose.
• Sell shares. However, in the case of a CJSC, the shares are not traded on the open market. The transfer takes place in accordance with the rules provided for by the legislation and the charter of the company.

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