Public Joint Stock Company: organization and principles of work in Russia

Contents:

• Features of the PAO organization
• Management structure of PJSC
• PJSC: advantages and disadvantages

A public joint stock company (PJSC) is one of the main forms of business organization in Russia. Provides companies with access to capital from a wide range of investors. The main feature of PJSC is the free circulation of shares on the open market, which contributes to increasing transparency and competitiveness of domestic companies.

Features of the PAO organization

PJSC has certain distinctive features in comparison with other types of joint-stock companies. Thus, in comparison with a non-public joint stock company (NPJSCO), PJSC provides the opportunity to circulate its shares on stock exchanges. This ensures high liquidity and access to a wide range of investors. Shares are transferred to the NPJSC  only with the consent of other shareholders, which reduces liquidity and limits the range of potential investors.

Compared to the NPJSC, PJSC is obliged to provide regular reporting and information about its activities. This helps to increase transparency and trust on the part of shareholders and investors. Non-public companies have more limited data disclosure requirements.

Management structure of PJSC

The management structure of a Public Joint–Stock Company assumes the division of powers between shareholders and a collegial body – the board of directors. Shareholders who own shares of 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 financial condition of the company, its activities and strategic plans on an ongoing basis. This increases the level of transparency and trust on the part of investors, which helps to attract additional capital for business development.

Russian legislation regulates the activities of PJSC through the introduction of norms and requirements aimed at protecting the interests of shareholders and ensuring the stable functioning of financial markets. This concerns the establishment of the procedure for holding the general meeting of shareholders, the definition of profit distribution rules and other important aspects of corporate governance.

PJSC: advantages and disadvantages

The advantages of PJSC include the following:

• Access to capital. One of the key advantages of PJSC is the company’s ability to raise funds from a wide range of investors through open stock trading. This provides access to additional financial resources for the implementation of various projects and development strategies.
• Distribution of risk. The division of ownership of shares allows you to distribute the risk among many investors. Thus, no single investor bears the full financial burden of possible losses.
• Transparency of work. Obligations to shareholders to provide regular information about the financial position and activities of the company contribute to increased transparency. This strengthens investor confidence and creates favorable conditions for long-term mutually beneficial relationships.
• Liquidity of shares. PJSC’s shares, which are traded on financial markets, provide high liquidity. Investors can easily buy and sell stocks, which creates flexibility in investment management.

Among the disadvantages of PJSC are the following:

• Restrictions in the management of the company. Public firms often face restrictions in business management due to the large number of shareholders. Important decision-making may be slowed down due to the requirements for alignment with the interests of different stockholders. Another problem may lie in the inability to vote at the general meeting of some shareholders who have limited shares. This will entail a possible conflict of interest.
• The ability to create only short-term strategies. Under the pressure of quarterly reports and market assessments, companies may be at risk of developing short-term strategies instead of investing in long-term development.
• Price volatility. Stocks that are traded on the market are subject to price volatility. This can create instability and influence company management decisions.
• Additional expenses. Maintaining the status of a public company may entail unnecessary costs for compliance with legal norms, financial reporting, auditing and other processes. This can become an extra burden for the company.
• The ability to change control. Public companies can become targets of takeover or forced change of control, which can change the strategy and direction of the business.

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