Reorganisation of a joint stock company: preparation for the process and the procedure for carrying it out

Contents:

• Necessity of reorganisation and liquidation of a joint stock company
• Types of JSC reorganisation
• First steps in reorganising a JSC
• General procedure for JSC reorganisation
• Adoption of a decision on reorganisation of the company
• What is necessary to make the final decision?
• The notice must be accompanied by such documents:
• What data should the decision on reorganisation contain?
• Submission of documents for reorganisation

Reorganisation of a joint stock company is an important stage in the conduct of business, which can occur for various reasons: from strategic changes in the company to economic necessity. The process affects changes in the management structure, legal status or even the form of ownership of the company. In this article, we will look in detail at the key aspects of changing the legal status of a JSC and the main steps that need to be taken to make the process successful.

Necessity of reorganisation and liquidation of a joint stock company

Reorganisation of a joint stock company may be necessary for several serious reasons, which relate to both internal and external aspects of the company’s activities. We can highlight the main ones:

• The need to change the business strategy or direction of the company, which will require a change in its structure. For example, if a company decides to expand into new markets or business areas, it may require mergers with other companies, demergers or redistribution of assets. Reorganisation in such cases helps to adapt the company to new market conditions and ensure its continued growth and development.
• Difficult financial situation of the company. For example, if a company is facing financial problems or long-term liabilities, restructuring its debt or selling part of its business can help restore financial stability and avoid bankruptcy.
• A desire to improve management processes and operational efficiency. Reorganisation involves reviewing the management structure, streamlining business processes and improving control and resource management. This allows the company to be more flexible and competitive in the market.
• Changes in legislation or tax policy. For example, changes in tax legislation may affect a company’s tax structure. This will eventually motivate a change in its organisational form or ownership structure.
• Strategic considerations, including mergers or acquisitions of other companies to expand market share or strengthen market position. All of these will be aimed at creating synergies and enhancing shareholder value through the combination of resources and competences of different companies.

Types of JSC reorganisation

1. Merger. In a merger, two or more companies are combined into one, with shareholders of the companies involved in the merger becoming shareholders of the new company.
2. Split-up. A company is divided into two or more independent companies, with shares distributed to shareholders of the original company. Debts may also be divided between the companies or assigned to only one of them.
3. Complete Sale. A company may sell its assets or part of its business to another company or investor. It can also be a takeover, where one company takes complete control over another company.
4. Consolidation – the process of combining several subsidiaries to simplify management or improve operational efficiency.
5. Restructuring. A company changes its internal structure or ownership without directly affecting its shareholders or owners.

First steps in reorganising a JSC

1. Preparation and analysis. Determination of reorganisation objectives, analysis of the company’s financial condition and assessment of possible reorganisation options.
2. Development of a reorganisation plan. Developing a detailed plan of action, including choosing the type of reorganisation, determining the timeframe and resources required to implement the plan.
3. Obtaining the consent of shareholders or participants. If necessary, holding a meeting of shareholders or participants to approve the reorganisation decision and amend the company’s charter.
4. Preparation of documents and registration. Preparation of necessary documents and registration of changes in the company’s constituent documents in accordance with legal requirements.
5. Integration and adaptation. After the reorganisation process is completed, it is necessary to integrate and adapt the new structure and management processes within the company.

General procedure for JSC reorganisation

• Adoption of an official decision to initiate the reorganisation procedure and start preparations
• Conducting an inventory of assets and liabilities of all companies involved in the process
• If necessary, obtaining authorisation from the Federal Antimonopoly Service for the transparency of the procedure
• Drawing up a transfer act
• Drafting a merger or consolidation agreement
• Drafting constituent documents of the companies
• Search for candidates for JSC management and control bodies
• Adoption of a decision on reorganisation at a shareholders’ meeting
• Submission of notification to the registration authorities
• Transmission of data to the FIS
• Adoption of a decision to issue securities by the reorganised company
• Submission of documents for state registration
• State registration
• Notification of the registrar

Adoption of a decision on reorganisation of the company

The relevant decision is adopted at the shareholders’ meeting in the general order. If the owner of the entire block of shares is one person, he or she shall prescribe his or her will in writing. The board of directors may propose the reorganisation through a written notice.

What is necessary to make the final decision?

Firstly, to call a general meeting of shareholders. To do this, it is necessary to send a month’s notice to its shareholders, where there will be a message with information about the availability of the right to demand the redemption of shares. For this purpose, it is necessary to determine the price determined by an independent appraiser and approved by the board of directors.

If the joint-stock company does not have a board of directors, it is necessary to specify in the notice the market value from the appraiser and indicate that the final price of redemption will be determined by the meeting of shareholders. The procedure of redemption and the address for sending claims shall also be specified.

The notice must be accompanied by such documents:

• Draft Articles of Association. If a JSC is being converted into an LLC, it is not required.
• Draft decision on reorganisation.
• Justification of the terms and procedure of reorganisation contained in the draft resolution on transformation.
• Annual reports and financial statements of the JSC for three completed reporting years preceding the date of the general meeting, or for each completed reporting year since the formation of the organisation, if the organisation has been operating for less than three years.
• Interim accounting (financial) statements of the JSC for the last completed reporting period, which consists of three, six or nine months prior to the date of the General Meeting, if such statements are prepared.
• A valuation company’s report on the market value of the JSC’s shares.
• Calculation of the price of the JSC’s assets based on information from the JSC’s accounting statements for the most recently completed reporting period.
• Minutes or an extract from them based on the meeting of the Board of Directors, where a decision was made to determine the price of repurchase of the company’s shares, specifying the price of repurchase of shares.
• Draft resolutions of the General Meeting of Shareholders.

It is important to know that documents remain available for 30 days before and during the meeting. For this purpose, they need to be placed in the public domain.

Next, the JSC needs to hold a meeting and pass a resolution with at least 75% of the shareholders’ votes. The meeting must be attended by the holders of voting shares participating in the general meeting.

What data should the decision on reorganisation contain?

• On approval of the constituent documents of the legal entity to be created and attach these documents. If you are converting a JSC into an LLC that will operate on the basis of a standard charter, we recommend that you specify this in the resolution.
• Procedure for exchanging shares for shares (contributions, units) in the event of reorganisation into another company. Any available formula may be used for calculation.
• Other data, e.g. about the auditor.

The decision is then formalised in the form of a protocol. It specifies the information that is also included in the decision on reorganisation in the form of conversion. The minutes must be signed by the chairman and the secretary.

Submission of documents for reorganisation

The application can be submitted three months after the entry in the Unified State Register of Legal Entities about the reorganisation procedure. It is necessary to collect the following business papers:- Application in the form R12016

• Charter of the future legal entity to be reorganised into a new JSC
• Document on submission of data to the FIU
• State duty payment receipt, if the application is submitted in person
• Document on amendments to the decision to issue bonds or other securities

Results

Reorganising a joint stock company is a complex and multi-stage process that requires careful planning and coordination of all stakeholders. A properly conducted reorganisation can help improve the company’s competitiveness, improve its financial position and create long-term value for shareholders and stakeholders.

It is important to understand that reorganisation is not a goal in itself, but rather a tool for achieving strategic objectives and ensuring the sustainable development of the company. Planning and implementing a reorganisation requires careful analysis, informed decision-making and consideration of the interests of all stakeholders, including shareholders, employees, partners and customers.

A thorough understanding of the reasons and objectives of the reorganisation, as well as an assessment of its potential consequences, is crucial to the successful completion of the process. Companies that decide to reorganise should be prepared for the changes it may bring and should have a clear action plan in place to minimise risks and ensure a smooth transition.

However, it is important to remember that successful completion of a reorganisation requires not only professional knowledge and skills, but also attention to detail and consideration of potential risks.

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