Common features and differences between LLCs and NPJSCs

Contents:

• Characteristics of the LLC
• Peculiarities of NPJSC
• Key differences between LLCs and NPJSCs
• Outcomes

Today, an entrepreneur can register one of several forms of organisation, each of which has its own features, advantages and disadvantages. However, there are two most common structures – limited liability company (LLC) and non-public joint stock company (NPJSC). They allow you to create your business and manage it effectively. However, it is important to consider the differences in a number of important characteristics. What are they about? Let’s talk in this article.

Characteristics of the LLC

Limited Liability Company (LLC) is a form of business organisation, where the participants are not personally liable for the obligations of the firm, but limit its size to a share of the charter capital. LLC can have from one to 50 founders. At the same time, the authorised capital determines the minimum financial reserve of the company. It can be used to pay debts and ensure the firm’s operations. A company of this form has certain management bodies. These include a general meeting of participants, a director and an audit commission (not necessarily). LLC is one of the most common forms of business in many countries due to its flexibility and limited legal liability for the founders.

What are the signs that indicate an LLC?

• Limited liability. The founders (participants) of the LLC are liable for the obligations of the company only to the extent of their contributions to the authorised capital.
• Presence of authorised capital. LLC has a charter capital, which is formed at the expense of contributions of participants and is a guarantee of the solvency of the company. The minimum amount is 10,000 roubles.
• The number of participants. LLC can have from one to 50 participants, which makes it attractive for small and medium-sized businesses.
• Management bodies. They include general meeting of shareholders, a director or a board of directors.
• Democratic management. An LLC allows members the flexibility to run the company, make strategic decisions and determine internal routines.
• Data privacy. Unlike public companies, data about the owners and activities of LLCs can be more confidential.
• Simple registration procedure. The registration procedure for LLCs is usually simpler and less costly than other forms of organisation such as joint stock companies.

The advantages of operating as part of an LLC include the following:

• Limited liability. The founders and owners of an LLC are liable only to the extent of their investment in the authorised capital. This means that their personal assets are protected from potential debts and liabilities of the company.
• Flexible management. Unlike other forms of companies, LLC governance can be democratic and comfortable. Founders can create governance rules, make strategic decisions and appoint managers without being restricted by strict corporate procedures.
• Transparent profit distribution terms. The LLC has flexibility in the distribution of profits among members, taking into account their shares in the authorised capital.
• Simple registration. The process of setting up and registering an LLC is usually less complicated and more accessible than other forms of companies such as joint stock companies
• Attractiveness to small businesses. An LLC is often the preferred choice for small and medium-sized businesses because it allows owners to reduce risk and retain control of their business.

However, along with its advantages, the LLC has certain disadvantages:

• Lack of full-fledged protection from financial problems. The founders may still be liable for the company’s debts in certain situations, such as abuse of corporate opportunities or failure to comply with the law.
• Limited ability to attract investment. LLCs have limitations in attracting investment compared to other forms of businesses such as joint stock companies. This is due to restrictions on trading in shares and other financial instruments.
• Administrative Burden. An LLC is required to comply with certain administrative requirements such as bookkeeping, filing returns and paying taxes. This can incur additional costs and require time and effort.
• Limited profit distribution options. Profit distribution in an LLC is limited to the members’ shares, which may limit flexibility in this matter compared to other forms of organisations.

Peculiarities of NPJSC

A non-public joint stock company (NPJSC) is a form of business organisation where the authorised capital is divided into a certain number of shares. They are owned by the participants of the company. Securities are not traded on open markets and are not available to the general public. Owners of shares may be individuals or legal entities, and their liability is limited to the amount of their contribution to the authorised capital.

NPJSC also has its own management bodies – the General Meeting of Shareholders, Director, also can have the Board of Directors and the Audit Commission, which control the company’s activities and make strategic decisions. This type of organisation makes it possible to attract investments and distribute risks among the participants, while ensuring a certain level of confidentiality and control over the company.

Among the advantages of NPJSCs are:

• Limited liability of founders and shareholders. If the firm goes bankrupt, shareholders will lose money only to the extent of the value of the shares they own.
• The same authorised capital for NPJSC is 10,000 roubles.
• Closure from the influence of third parties.  
• It is easier to control the situation among the company’s shareholders, as the circle of founders is limited to 50 participants.

Key differences between LLCs and NPJSCs

NPJSCs and LLCs are forms of business organisations, but they have a few key differences:

1. Authorised capital. The authorised capital of an NPJSC is divided into shares that can be sold and transferred by individual shareholders. In the case of LLCs, the authorised capital is divided into shares, which, as a rule, cannot be freely transferred to third parties without the consent of other participants in the company.
2. Necessity of interaction with the registrar. Both when registering a NPJSC and in the course of its activities, it is necessary to co-operate with the registrar, since all operations with shares are conducted by the registrar. For LLC there is no such necessity, which reduces the company’s costs in this part.
3. Legal Status. LLC, as well as NPJSC has the status of a legal entity. However, in NPJSC shareholders are liable for the company’s obligations only to the extent of their contributions (for some forms of companies), while in LLC participants are liable for the company’s obligations in proportion to their shares in the authorised capital.

Outcomes

NPJSCs and LLCs are different forms of business organisations with significant differences in structure, management and responsibilities. NPJSCs are characterised by stockholders, a governance structure based on corporate principles and more stringent reporting requirements. An LLC, on the other hand, has more centralised management, somewhat limited liability of members and less stringent reporting requirements.

Translated with DeepL.com (free version)The authorised capital of a NPJSC is divided into shares that can be freely sold and transferred between shareholders, while the authorised capital of an LLC is divided into shares, the holders of which cannot always freely dispose of them without the consent of other participants. In addition, a NPJSC is subject to more stringent reporting and disclosure requirements due to the presence of shareholders who are interested in the transparency of the company’s activities.

It is important to understand that both forms provide legal protection for businesses, allow the organisation of limited liability company activities and can be effective tools for business development depending on the specific goals and needs of the entrepreneur. The choice between an NPJSC and an LLC depends on a number of factors, such as the size of the company, business objectives, management and liability requirements, and plans to attract investment and develop the company in the future.