CHOICE OF FORM OF DOING BUSINESS IN UKRAINE (PART 2)

 We continue the topic of choosing the form of doing business, last time we discussed such a structure as LLC and general factors that should be considered when choosing the legal form.

 Unlike a limited liability company, a joint stock company (JSC) is a type of legal entity that has the right to issue shares. The shares must be registered with the National Securities and Stock Market Commission (hereinafter referred to as the Securities Commission). Compliance and reporting requirements for JSCs are much more complex and burdensome, and therefore this type is only suitable for large companies.

 A joint-stock company can be either a public limited liability company (when its shares are publicly traded or publicly traded on a stock exchange) or a private limited liability company (when its shares are privately owned).

≡ The main characteristics of JSC

ᐉ Registration

 The process of JSC registration is much more complicated, as the JSC must comply with a number of legal requirements for pre-registration, including:

• registration of the issue of shares in the securities commission
• obtaining a temporary certificate of registration of the issue of securities
• assignment of an International Securities Identification Number (ISIN) to shares
• concluding an agreement on servicing the issue of securities with the Central Depository
• independent assessment of shareholders' contributions to the authorized capital (if payment is made in property and not in cash)
• payment by shareholders of JSC of the authorized capital in full, etc.

ᐉ Compliance and reporting

 A JSC is more strictly regulated by Ukrainian law, including provisions on the protection of the rights of minority shareholders (for example, cases where a JSC or a shareholder who buys a controlling stake in a JSC is obliged to purchase shares of other shareholders at their request), complex procedures for changing shareholders , number and composition of governing bodies, disclosure of a wide range of information about JSC. In addition, for a public joint-stock company there are different requirements for the publication of financial statements, annual external audit, special procedure for the election of governing bodies and their composition, and so on.

ᐉ Limited liability

 The same as LLC. A joint-stock company is a company whose shareholders are liable for the company's obligations only within the limits of their authorized capital and are not personally liable for the company's debts.

ᐉ Shareholder

 All joint stock companies must have at least one shareholder without a limit on the maximum number of shareholders.

ᐉ Director

 The same as in LLC. Directors are appointed by shareholders through the general meeting of shareholders (GAA) or the supervisory board in accordance with the Articles of Association.

ᐉ Company secretary

 The appointment of a company secretary is not required, but according to the law, the Supervisory Board has the right to appoint a corporate secretary - an individual responsible for ensuring the interaction of the JSC with its shareholders / investors.

ᐉ Address registration

 The same as LLC.

ᐉ Equity

 Differs from LLC. The authorized capital may not be less than the equivalent of 1250 minimum wages, based on the rate in force at the time of establishment of the company, and must be paid in full by shareholders before the registration of the JSC. Additional share capital may be introduced at any time following the appropriate procedures.
Shares and other securities. Unlike a limited liability company, a joint-stock company may issue ordinary and preferred shares, but preferred shares may not exceed 25%. Preference shares usually give more rights to income, but less voting rights; preferred shares may have several classes, as described in the charter of the JSC. The JSC may issue other securities, such as bonds.

ᐉ Reserve capital

 The JSC is obliged to form a reserve capital in the amount of 15% of its paid-in capital. Reserve capital is formed gradually by annual contributions of at least 5% of the annual net profit of the JSC.

ᐉ Management

 Similarly LLC, but with some exceptions. JSC is managed by the following bodies:

 The General Meeting of Shareholders (hereinafter referred to as the General Meeting of Shareholders) is the main decision-making body with the authority to resolve all issues.

 The Supervisory Board is appointed by the CMA and may consist of at least 5 individuals who are either shareholders / their representatives or independent directors. The Law of Ukraine "On Joint Stock Companies" provides for a number of requirements for independent directors in order to ensure their independent character from illegal influence by shareholders and members of the executive body (Board of Directors). The Supervisory Board is mandatory if the number of shareholders exceeds 10 people. The Board of Directors supervises the activities of the Board of Directors / Director. By law, the supervisory board of public joint stock companies must include at least two independent directors and appoint a number of internal committees specified by law.

 The executive body (Board of Directors or director) is appointed by the Supervisory Board (if in accordance with the Statute of the appointment of the executive body is not within the competence of the CBA) and is responsible for the day-to-day activities of the JSC. According to the law, the executive body has all the powers, except those that by law or the charter of the JSC fall within the competence of the CBA or the supervisory board. The exact number of members of the executive body and its competence are determined by the company's charter or other internal regulations. The executive body may consist only of individuals (corporate directors are not allowed).

ᐉ Audit Commission

 The controlling body of the JSC, which supervises the Supervisory Board and the executive body of the JSC and performs the annual financial audit. The members of the Audit Commission are appointed by the SAA.
Transfer of shares. Differs from LLC.

 Unlike a limited liability company, there is no need to amend the Company's Charter to transfer shares (since the shareholders are not listed in the company's charter for an AT-type company), but the transfer is confirmed by a securities account statement.

 Note that the acquisition of a significant (10% or more) and 50% (or more) share in the share capital requires the shareholder to comply with a number of procedures aimed at protecting the rights of minority shareholders, namely: if the acquisition of shares will lead to shareholder acquisition 10 % (and more) of the authorized capital of the JSC, such a shareholder is obliged to notify the JSC of such purchase, as well as to publish such information in the securities commission; in the case of the acquisition of 50% or more of the shares, such shareholder must offer other shareholders to purchase their shares at the market price.

ᐉ Taxation

 The same as LLC.

ᐉ Reporting standards

 Public companies must use IFRS accounting standards, while private companies may choose between national or international IFRS standards (with some exceptions provided by law).

ᐉ Audit of accounts

 For public joint stock companies, the annual financial statements are subject to external independent audit; for private joint stock companies the audit is not mandatory, except in a number of cases provided by law (including when the JSC is owned by a foreign investor by 10% or more)

 For JSCs, the initial registration procedure and current regulatory requirements are much more burdensome and complex than for companies such as LLCs. Therefore, a legal entity such as JSC is suitable only for large business entities. Note that the company can be transformed into a JSC at any stage, subject to compliance with the relevant legislative procedure of reorganization.