In accordance with current Russian legislation, all joint stock companies are divided into two varieties:
- Open.
- Closed.
What are they?
Closed Joint Stock Company - a company that provides for the distribution of shares exclusively among its founders. In addition, shares may be distributed among other, pre-determined circle of persons.
Public corporation - this is a company in which participants have the right to alienate shares owned by them without the need for prior consent of other shareholders.
Imperfect definitions
It is easy to see that different criteria are used as the basis for these definitions. In the first definition, this is the composition of the participants, and in the second, the absence or presence of the right to completely unlimited alienation of shares in favor of their owners.
The absence of any logical connection between these definitions of types of joint-stock companies, as well as the absence of a solution to this issue, indicates that there is a significant level of conditionality in the division of joint-stock companies into two varieties, as well as the absence of a reliable basis for such a division.
Definition Completeness
If, as the main differences between the above types, we perceive the presence of their right to completely free disposal of shares, as well as the number of shareholders present, then in this case the following definitions could be more logical:
- Public corporation - this is a company in which there is the possibility of distributing shares among initially unknown persons who are able to completely alienate the shares in their ownership without obtaining the consent of other participants.
- Closed Joint Stock Company - this is a company in which there is the possibility of direct distribution of shares among its founders or originally known persons who do not have the right to alienate shares in their ownership to those persons who are not participants in this company, if the consent of the rest of it has not been obtained participants. In the overwhelming majority of cases, such consent is such a procedure in which, for a certain period of time, participants in the company have more rights to purchase the shares sold than people who are not in this company.
Current legal practice approaches the issue of the type of joint-stock company by clearly defining the number of shareholders in the legislation, in case of exceeding which it should automatically be re-registered as open.
Companies as a legal entity
As a legal entity, any operating joint-stock company is considered as an organization of several market participants, which is characterized by the presence of three main criteria:
- Authorized contribution It is formed entirely from the contributions of participants in a given company, and these contributions, after being made, are placed at the full disposal of this company.
- Property liability each individual participant in the company is limited by the size of the contribution that he made. It should be noted that the joint-stock company absolutely independently bears full responsibility for each obligation it takes.
- Registered capital It is subdivided into several shares, which are provided in exchange for the contributions made, and which are held by the participants of the company, and not by itself.
A distinctive feature of this legal entity as a specific feature is that it issues shares.
Legal features of a closed society
According to the law, the main features that define a closed joint-stock company are as follows:
- Shares may be distributed exclusively among participants or other persons who are known in advance, and whose total number does not exceed 50.
- Closed joint-stock company does not provide for the right to introduce the possibility of open subscription to any own shares.
- Participants have a pre-emptive right to acquire those shares that are sold by other participants.
Legal features of an open society
Current legislation defines an open joint-stock company on the following grounds:
- The number of participants in this company is in no way limited by law.
- Shareholders who are members of an open joint-stock company may alienate their own shares without the need for prior consent from other shareholders.
- This company has the right to introduce any type of subscription to its shares (closed or open).
- Open (public) joint stock company without fail, it must provide the market with all the necessary information about its work in the volumes and within the time frames established by the current legislation, as well as other regulatory acts of a particular state. In particular, a report must be published every year, an account of losses and profits, as well as a balance sheet for the general public.
Similarities and differences
The closed joint-stock company of the company, in fact, is an intermediate type between LLC and OJSC:
- Unlike a limited liability company, a closed company uses the division of share capital into shares, rather than into units.
- A closed joint-stock company also provides for limited liability, because the number of its participants is limited, and the sale of shares, like shares, cannot be carried out until agreement has been obtained from other members of this company.
- After the decision was made to open an open joint-stock company, all its shares are circulating on the country's stock market. At the same time, the shares of a closed company, just like the shares of LLC, are not traded on the stock market itself, and therefore they do not have their own market price as a characteristic, as well as as a socially recognized value, despite the possibility get the market value as a one-time value or as the result of any one-time transaction.
- LLC and ZAO can be transformed into an open (public) joint-stock company or vice versa, but in the first case it will be necessary to re-register, while in the second it will completely change the type of joint-stock company.
The core of a closed society
In fact, the main difference between a closed joint-stock company and a limited liability company is a formal formality, because in the first case any invested capital is called a share, while in the second it is represented by shares, that is, a certain form of securities. But at the same time, the form of the security is only external to the stock, because the main essence of the stock is its absolutely free circulation in the current stock market, while in this case it is deprived of this property and completely loses its characteristics of the security. Only if a decision is made to open an open joint stock company, can a stock market be created as a stock market.
In addition, we can say that, in principle, between JSC and CJSC there is a fundamental difference in the rights of the capital combined in them, while there are no such differences between LLC and CJSC. Despite the fact that the law on joint-stock companies does not indicate this, in fact, a closed joint-stock company is, in terms of equity, more of an LLC than an open joint-stock company.
The need for closed joint stock companies
By its own economic nature, a joint-stock company is an open company, because it is in it that absolutely all potential opportunities that can only be incorporated in it appear as in a free form of combining various capitals of existing market participants. Only if an OJSC is present, the shares of the joint-stock company become such, because without the presence of completely free circulation, they completely lose their character in the form of a security and become only evidence that a contribution to a certain authorized capital has been made.
At the same time, the needs of market participants to use simultaneously several levels of capital pooling in terms of their size necessitate the use of an additional, intermediate type of organization between a limited liability company, as well as open, that is, they represent the reason for the emergence and existence of today closed type of joint stock companies. For this reason, the law on joint-stock companies provides for their distribution into several varieties.
