Joint Stock Companies: Advantages, Disadvantages, Legal Boundaries

A Joint Stock Company, public company, is a legal entity that issues shares for the purposes of raising funds for the performance of its activities shall be deemed the joint-stock company. JSC’s capital charter consists of its founders’ payments for shares at their par value and payments from investors for JSC’s shares placed at a securities market. The shareholders shall not be liable for the obligations of a joint-stock company, and they shall bear the risk of losses associated with the company’s business, within the limits of the value of the shares they hold.

A joint-stock company shall possess the assets, which are separate from the assets of its participants. A joint-stock company shall be liable for its obligations within the limits of its property, and it shall not bear any liability for the obligations of its shareholders. The structure of JSC is more complicated than other structures of entities. The JSC’s supreme managing body is the general meeting of shareholders, which has the exclusive competence of deciding on most vital aspects of JSC’s activities, including approval of ‘major transactions’ (transaction or a series of transactions for the amount of at least 25% of the total amount of the JSC’s assets). Other bodies of the JSC are: the supervisory body – the board of directors and the executive body – the general director(s) and managers.

The main advantages of a JSC are:

• the free transfer of shares without reregistering the company,
• the attracting of additional capital through a public offering of shares,
• limited liability of shareholders. It means that when it comes to taking responsibility for business debts and actions of a corporation, shareholders’ personal assets are protected.
• ability to generate capital. Corporations have an advantage when it comes to raising capital. They can sale stock.
• corporate tax treatment. Corporations file taxes separately from their owners. Owners of a corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends.
• attracting potential employees. Corporations attract and hire high-quality and motivated employees because they offer competitive benefits and possible stock options.

However, JSCs are subject to complex requirements which is disadvantages of JSC in compare to an LLP:

• a large minimum share capital of 50.000(MCI);
• the registration of issues of shares and related reporting to competent authorities;
• a complex corporate structure and decision-making process;
• a mandatory annual financial audit;
• more complicated state registration procedure; stricter reporting requirements (JSCs are subject to control and supervision of the Agency for Regulation and Supervision of Financial Market and Financial Organizations and are required to regularly furnish reports on placement of shares to this authority);
• mandatory requirement of publication of accounts;
• strict internal regulations to enter into major transactions; longer decision-making procedure;
• and special requirements to the procedure for entering into interested-party transactions.

Also Negative attributes of JSC can be considered:

• time and money, which means corporations are costly and time-consuming ventures to start and operate. Incorporating requires start-up, operating, and tax costs that most other structures do not.
• double taxing, that means in some cases, corporations are taxed twice: first when the company makes a profit and second when dividends are paid to shareholders.
• additional paperwork, because corporations are highly regulated by state, and, in some cases, local agencies, there are increased paperwork and record keeping burdens associated with this entity.

Legislation about JSC considers rights and duties of shareholders, however does not provide special protection to minority shareholders, although:

• Any shareholder has a number of inherent rights, including rights to management, information, income, distributed property after liquidation, pre-emption rights in share transfers and to dispute the decisions of the LLP’s bodies in court.
• Each shareholder is entitled to participate at general meetings of shareholders and vote in proportion to his share.
• The general meeting of participants cannot open the meeting without a quorum of 50% of votes or, in some cases, two-thirds of votes.
• Decisions of the general meeting of participants regarding changes to the charter, share capital, address or company name; reorganisation or liquidation of the LLP; forced share buyouts or pledges of the LLP’s property require three quarters of the votes present at the meeting.
• Other decisions of general meeting of participants can be made by simple majority of more than 50% of the votes represented at the meeting.

Also shareholder has a right:

• to participate in the management of the company;
• to receive dividends;
• to receive information on the company’s activities, including familiarization with the company’s financial statements;
• to propose candidates to the general meeting of shareholders of the company for election to the board of directors of the company;
• to challenge decisions taken by the company’s bodies in court;
• to apply to the judicial authorities on their own requesting that the officers of the company pay damages to the company, and return to the company by officials of the company and (or) their affiliates of the profit (income) they received as a result of making decisions on the conclusion (proposal for conclusion) of major transactions and (or) transactions, commitment of which there is an interest;
• to apply to the company with written inquiries about its activities and receive motivated responses within thirty calendar days from the date the request was received by the company;
• to the preemptive purchase of shares or other securities of the company convertible into its shares,
• to participate in the adoption by the general meeting of shareholders of a decision on changing the number of shares of a company or changing their type in the manner provided for by this Law.

Also a shareholder of a company must:

• pay for shares;
• notify the registrar of the company and the nominal holder of the shares, owned by the shareholder, about the changes in the information, necessary to keep the register system of the company’s shareholders within ten days;
• not to disclose information about the company or its activities, constituting official, commercial or other secrets protected by law;
• perform other duties in accordance with this Law and other legislative acts of the Republic of Kazakhstan.

In conclusion, according to the our research it is clear that answer to the main question which is identification of the business structure best suited for business activity depends from the several factors, however one of the main criteria was identification of the maximum legal and business (tax) protections. So in order to identify this business structure we had to considered following questions: ‘What legal structures are fixed in the legislation of the country and what are their features? And what are their advantages and disadvantages from economic and legal point of view?’ Working towards answering these questions, we have made conclusion that each type of business structure affords unique advantages and disadvantages compared to the other types and there is no business structure that will ideally suit all businesses.