Open Joint Stock Company: characteristics, features and advantages over other forms of business

Contents:

• Public company: characteristics
• Features of the PJSC
• Advantages of PJSC
• Disadvantages of PJSC
• Public Joint Stock Company: structure
• Features of PJSC management
• Features of the organization of PJSC

Public join-stock company is the most popular form of organization for large business. Share capital is divided into a certain number of shares, which can be purchased and sold by shareholders on the stock exchange. What are the specifics of the public company, we will tell you in this article.

Public company: characteristics

Today, in Russia is officially called a «Public joint-stock company». The renaming to PJSC became possible thanks to the changes to the Civil Code of the Russian Federation since September 1, 2014. The main reason for the renaming is to align Russian terminology with international standards and unify the concept used in legislation. The term “Public joint stock company” is used in many countries of the world to designate firms whose shares can be freely bought and sold on stock or other markets.

The transition to the new terminology helps to clarify the legal status of a company and make it more understandable in Russia and abroad. It also helps to the formation of a unified terminology base for market participants and protects the interests of investors and shareholders. This renaming does not introduce serious changes in the legal status and operation of PJSC. They are also legal entities governed in accordance with the current legislation and corporate law norms.

The activity of companies in Russia are regulated by the law «About joint stock companies».

Features of the PJSC:

• Publicity. PJSC shares may be bought by any person on the open market, as they are not bound by the pre-emptive right to purchase shares by other shareholders.
• Large number of shareholders. A PJSC has at least 50 shareholders who can participate in the General Meeting of Shareholders and vote on management issues.
• The share capital of a PJSC is divided into a certain number of shares of a certain par value. Shares may be saleable or non-saleable and are divided into ordinary and preference shares.
• PJSC has a Board of Directors, which is elected by shareholders at the General Meeting. The Board of Directors manages PJSC’s operations, makes key decisions and controls the activities of the executive body.
• PJSC is obliged to prepare financial statements and submit them to shareholders and state controlling authorities.
• Shareholders of PJSCs have certain rights, including the right to participate in management, the right to receive a share in profits, information about the company and to participate in the distribution of property on liquidation.

A public joint stock company is a flexible form of business that offers clarity and certain rights to shareholders. However, this form of business organization is prone to certain limitations and requirements that are required by law.

Advantages of PJSC

Like any organizational-legal form, an PJSC has its “pluses” that identify its effectivity and relevance. The advantages of a PJSC are as follows:

• Risk Sharing. Open joint-stock companies allow investors to share the risk by buying shares and becoming a co-owner of the company.
• Raising Capital. Through a public offering, a firm can get access to many potential investors and raise substantial funds to grow its business.
• Stock liquidity. Stocks issued in PJSC give investors the opportunity to buy and sell them, which ensures high liquidity of investment.
• Professional management that allows running more efficient operations than in non-corporated forms of business organization.
• The ability to raise capital by issuing shares and selling them on the market. This allows the company to mobilize large amounts of money to finance business expansion, investment in new projects, acquisition of assets and other strategic goals.
• Brand promotion and transparency, which means higher attention from the public and investors. Regular reports on financial performance, participation in investment conferences and press conferences, and other communication activities help promote the company’s brand and boost its reputation.

Disadvantages of PJSC

• Costs of establishment and service. The process of establishing and service a PJSC requires large financial outlays.
• Obligations to shareholders. When shareholders are involved in a PJSC, obligations to them arise. This concerns payment of dividends, information transparency and democracy in management.
• Reputational risk. PJSCs are at the center of public attention. They are more exposed to reputational risks – compliance issues, financial fraud or breaches of environmental/ethical standards.
• Management constraints. In PJSC, public activity may trigger constraints on management decisions. The company’s actions are affected by government and public scrutiny.
• Loss of control over the company. After the number of shareholders in a PJSC grows, the first owners may lose control over the management of the company.
• The possibility of government intervention. Particularly large companies and strategically important companies may be subject to government intervention.
• Stock market manipulation risk. PJSCs may be subject to stock market manipulation. This may include artificial increases or decreases in share price, manipulation of company information and other mechanisms that may negatively affect investors, share price and the company’s reputation.
• Increased requirements to financial reporting and transparency. PJSCs are required to report in accordance with legal requirements and ensure that information is open and accessible to shareholders and the state authority.

The advantages and disadvantages of a PJSC are considered before deciding on the choice of legal form. The correct application of tools, consideration of disadvantages and the ability to manage them can contribute to the successful development of the company in the long term.

Public Joint Stock Company: structure

The specifics of PJSCs management in Russia is the existence of different management bodies. According to the norms of the law, this list includes:

• The General Meeting of Shareholders is the supreme management body where decisions on major issues of the company are made. The General Meeting of Shareholders is called once a year at least. It decides on the selection of the Board of Directors, approval of reports, distribution of profits, changes to the Charter and other important issues.
• The Board of Directors is a collegial management body elected by the General Meeting of Shareholders. This body Directs the activities of the PJSC, makes strategic decisions, controls financial activities and approves key decisions affecting the long-term performance of the commercial organization.
• The General Director is the head of the PJSC, who is the executive body of the company. He heads the operating management of the organization, implements the decisions made and carries out the day-to-day management of the business. He is appointed by the Board of Directors of PJSC.
• The Audit Commission is an internal control body that audits financial and economic activities, reconciles accounting and financial statements, and supervises compliance with rules and legal requirements. The Audit Commission consist of independent members.
• Audit Committee – formed by the Board of Directors, which performs an independent audit of PJSC’s financial statements and operations and interacts with the external auditor.

The structure of a public company’s governing bodies may vary depending on the specific requirements of the charter and regulation, as well as the characteristics of each firm. All management bodies have an individual set of functions and powers, which are aimed at effective management and control of the joint stock company’s activities.

Features of PJSC management

The governance structure of a public joint-stock company implies a division of powers between shareholders and a collegial body – the Board of Directors. Shareholders who own shares in the company have certain rights – participation in voting on key issues, decision-making on various important issues and many other powers. These rights provide shareholders with the opportunity to influence the management of the company in accordance with their interests.

PJSC is also obliged to provide shareholders with information on the company’s financial condition, operations and strategic plans on an ongoing basis. This increases the level of transparency and investor confidence, which helps to attract additional capital for business development.

Russian legislation regulates NJSCs through the introduction of norms and requirements aimed at protecting the interests of shareholders and ensuring stable functioning of financial markets. This applies to establishing the procedure for holding general meetings of shareholders, determining the rules for profit distribution and other important aspects of corporate governance.

Features of the organization of PJSC

A PJSC has certain distinctive features compared to other types of joint stock companies. For example, compared to a non-public joint stock company (NJSC), a PJSC provides an opportunity for its shares to be traded on stock exchanges. This provides high liquidity and access to a wide range of investors. In NJSCs, shares are usually transferred with the consent of other shareholders, which reduces liquidity and limits the range of potential investors.

Compared to NJSCs, PJSCs are required to submit regular reports and information on their activities. This promotes transparency and trust on the part of shareholders and investors. Non-public companies have more limited disclosure requirements.

Q&A