Joint Stock Company: features and important characteristics. What do I need to know when opening?

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Contents:

A joint–stock company (JSC) is a form of business organization in which the authorized capital is divided into a certain number of shares. This legal status provides unique advantages. However, it comes with certain disadvantages and features. The share of ownership in the company is provided by shares. They can also trade in the financial markets. In this article, we will analyze in detail the features of the JSC organization.

What you need to know about the differences between the authorized capital and shares

Shares are a security that allows you to receive a portion of the company’s profits or a share in the division of its property. They represent a share in the ownership and give the right to participate in the management of the company and receive dividends. A share is a security that indicates the share of its owner in the ownership and management of the company. When a company decides to raise capital, it issues shares, giving investors the opportunity to become its co-owners.

The share capital is the amount that shareholders commit to contribute to the company in exchange for shares. It can be set to a fixed or variable value. The authorized capital is the funds or property that the company intends to use to achieve its goals and ensure financial stability.

Stocks are a key tool for companies, allowing them to raise capital for growth and development. Investors, in turn, use shares for long-term or short-term investments, as well as to participate in the management of the company through participation in general meetings and voting on key issues. However, not all types of shares allow the company’s participants to make decisions.

There are two main types of shares:

  • Preferred shares – such shares have priority in receiving dividends or returning capital upon liquidation of the company. Most often, they do not give their owners the right to vote at the general meeting and make any decisions in the company.
  • Ordinary shares – such shares grant the right to vote at the general meeting of shareholders. Unlike privileged ones, they are issued less frequently and are owned by fewer participants than privileged ones.

Advantages and disadvantages of JSC

A joint–stock company is an effective and flexible form of business organization, which has a number of significant advantages. They make JSC an attractive choice for companies seeking successful development, attracting investments and ensuring effective management. The main advantages of JSC include:

  • Risk sharing – shareholders are responsible only within the limits of their contribution, which reduces the risk of individual participants
  • Easy transfer of ownership – shares can be freely bought and sold, making it easier to transfer ownership and change ownership structure if the company is not public
  • Access to capital – A joint-stock company can more easily raise large amounts of capital by selling shares on the stock market
  • Attractiveness for investors – investors, by purchasing shares, become co-owners of the company and are entitled to a share in profits
  • Transparency and corporate governance – JSC often provides a more developed system of corporate governance and transparency, which increases investor confidence

Among the disadvantages of the Joint-Stock Company are the following:

  • Limited shareholder control – participants with a limited number of shares may have limited influence on strategic decisions
  • The need for dividends – shareholders expect dividends, which can put pressure on the company during periods of financial difficulties
  • Complex management system – in large joint-stock companies it may become more complicated due to the diversity of shareholders’ interests

Types of Joint-Stock Companies in Russia

  1. Public Joint Stock Company (PAO). The shares are publicly traded and can be purchased by any investor. A public joint stock company and a closed joint stock company represent two different forms of corporate structure, differing mainly in the availability of shares on the open market and restrictions on the transfer of shares between investors. A public joint stock company is characterized by the fact that its shares can be freely traded on financial markets accessible to the public. This means that any willing investor can purchase shares of the company on the stock exchange. In a public joint-stock company, the number of shareholders can be significant, and stock trading usually takes place openly. Public joint-stock companies are required to provide more information about their activities, since their securities are traded on financial markets, which also supports transparency and trust on the part of investors. In a joint-stock company, the level of reporting detail may be less extensive, since its shares are not publicly traded. 
  2. Joint Stock Company (JSC). Shares are sold to a limited number of shareholders and are not publicly traded. Previously, this form was called “closed”, but since 2014 it has been impossible to open a joint-stock company in Russia. The joint-stock company has a limited number of shareholders, and their shares are not traded on the financial markets. Such companies often restrict the transfer of shares between investors, requiring the approval of existing shareholders or owners of the company. As a result, a non-public joint-stock company has more limited access to capital, and co-owners usually have a closer relationship.
  3. Closed Joint Stock Company (CJSC). The participants of a closed joint–stock company are individuals or legal entities, of which there are a limited number. The establishment of a joint-stock company and its work do not require a large number of participants. Shares may not be freely transferred or resold to other persons without the consent of the current shareholders. It is important to make the transfer under the conditions set out in the company’s articles of association. This restriction allows shareholders to control ownership and management structure more closely.

The choice between a public, non-public and closed joint-stock company depends on the strategic goals of the company, its need to raise capital and preferences for the management and control structure.

How can I become a member of a joint-stock company?

In order to become a member of a joint-stock company, it is necessary to purchase shares of this company. They are securities indicating the owner’s share in the ownership and management of the company. The purchase of shares can be carried out on financial markets through brokerage companies or other financial institutions.

After the acquisition of shares, the participant of the joint-stock company becomes a co-owner of the company. This gives him a number of rights and responsibilities. In particular, a shareholder has the right to vote at the general meeting of shareholders on important decisions of the company, such as the selection of the board of directors or the adoption of strategic decisions.

In addition, a participant in a joint-stock company has the right to receive dividends, which are payments from the company’s profits. The amount of dividends depends on the financial results of the company and the decision of its management.

The members of the joint-stock company can also express their opinions on various issues by participating in discussions at general meetings. This allows shareholders to influence key aspects of the company’s activities and express their interests.

However, it is worth noting that shareholders also have a risk of losing investments, especially if the value of the company’s shares decreases. Nevertheless, in general, becoming a member of a joint-stock company provides an opportunity not only to invest in the company, but also to participate in its management and development.

Ways to start participating in JSC:

  • Purchase of shares – any person or organization can purchase shares of the company by becoming a co-owner and receiving the right to dividends
  • Participation in the general meeting – shareholders have the right to participate in the general meeting, where important decisions are made
  • Voting on key issues – shareholders have the right to vote on key issues such as the choice of the governing body and amendments to the articles of association

What types of JSC participants exist:

  • Shareholders are the main type of participants who own shares in the company. They can be individuals, legal entities, or other legal structures. They have voting rights at the general meeting of shareholders and can receive dividends.
  • Institutional investors are financial institutions such as pension funds, investment funds, and insurance companies. They own large blocks of shares and can have a significant impact on the company’s strategic decisions.
  • The Board of Directors is a management body that is elected by the shareholders. The members of the Board of Directors make strategic decisions, appoint executive directors and monitor the financial condition of the company.
  • The top manager and the executive director are the top management of the company and the key executive directors of the company. They are responsible for the daily management of the business and the implementation of the strategy approved by the Board of Directors.
  • Regular employees are employees who can hold any position in the company. Management often gives employees the opportunity to purchase or issue shares or stock options. This can help to increase motivation and a sense of belonging to the success of the company.
  • Dealers and intermediaries are individuals or organizations that are engaged in the purchase and sale of shares in financial markets and provide liquidity.

Results

The introduction of a joint-stock company entails a number of advantages, but the effectiveness of its functioning depends on the correct balance of shareholders’ interests and corporate governance. Regular updating of legislation and compliance with the principles of transparency contribute to the development of this form of organization and ensure its successful functioning in modern economic conditions.

Question and answer

What requirements are important to consider when registering a joint-stock company?

What should any founder observe?

  • A joint–stock company can be opened by one or more founders – individuals or legal entities.
  • The authorized capital must be defined in the company’s articles of association. This capital can be contributed by the founders in the form of cash, property or other assets. The minimum amount of the authorized capital is established by law and may change over time.
  • The charter is developed by the founders and must contain the following mandatory elements: name and legal address, goals and types of activities, information on the amount of the authorized capital and the share of each founder in the authorized capital, the management procedure of the CJSC and the structure of management bodies, rules for the transfer of shares and restrictions on their transfer, the procedure for convening and holding a general meeting of shareholders and others provisions.

Registration is carried out by the tax inspectorate after providing the necessary documents. After registration, the company is obliged to keep accounting records, pay taxes and comply with regulatory legal acts.



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