Reorganisation of a Non-Public Joint Stock Company: peculiarities of the procedure, difference from liquidation

Contents:

• The beginning of reorganisation as a process
• Peculiarities of a merger of NAPO with another company
• Peculiarities of a merger or division of NAPO
• Peculiarities of the spin-off and transformation of NAPO
• Advantages of reorganisation of non-public joint stock companies

Reorganisation of a closed joint stock company or NPAO is a process in which the legal form, structure or ownership of the organisation is changed. This is necessary to optimise or change the direction of the business. On 1 September 2014, Federal Law No. 208-FZ was amended to change the name from CJSC to NAPO. Thus, the creation of a closed joint stock company is prohibited by law. This form of organisation does not currently exist. However, the essence remains unchanged. NPAO may be transformed into any other form, including LLC. How the transformation takes place, we will consider in this article.

The beginning of reorganisation as a process

The transformation of a society can take place for the purpose of:

• Merger
• Accession
• Separation
• Spin-off
• Transformation

The reorganisation procedure must be carried out in strict compliance with the law.  

The process of transformation of NAPO always starts with the initiative of the Board of Directors. The body holds a general meeting of shareholders, the main purpose of which is to make a decision on the reorganisation of the joint stock company.

The main point of this meeting is voting, whereby the decision on reorganisation can be formally approved if at least three quarters of the shareholders’ votes have been obtained. Shareholders who were unable to participate in the voting process or who opposed the reorganisation have the right to demand that their shares be bought back by the company.

Within 30 days after the decision on reorganisation is made, the company must notify all creditors in writing of the beginning of reorganisation by publishing a notice of the decision.

Peculiarities of a merger of NAPO with another company

A NAPO merger is one of the ways of business reorganisation that aims to bring together two or more companies to achieve common business objectives. The process involves comprehensive planning, coordination and co-ordinated management.

The decision to merge is made by the shareholders of each company at a general meeting. This requires at least 75 per cent of the votes of the total number of shareholders voting.

Once the decision to merge has been made, the next step is the execution of the merger agreement. The document sets out the terms of the process, the procedure for transferring the rights and obligations of the merging company to the receiving company.

After the merger, the merged company ceases to exist, and all its assets and liabilities are transferred to the receiving company. Shareholders of the merged company receive shares in the receiving company in accordance with the articles of the merger agreement.

The final stage of the merger is the registration of changes in the Unified State Register of Legal Entities. Upon completion of the reorganisation procedure, the receiving company receives a new status and begins to act as a single legal entity.

Peculiarities of a merger or division of NAPO

The merger of joint stock companies begins with the termination of the activities of the organisations that want to join the accepted one. The registration of changes takes place on the basis of a resolution of the general meeting of shareholders and a merger agreement between the two organisations. Registration of changes in the constituent documents is the first basis for the transfer of assets and shares of the organisations to the assumed company.

As for a demerger, it is defined as the cessation of the activities of the main company and the subsequent creation and transfer of rights and obligations to two or more established companies. The shares of the company that is no longer functioning are distributed between the companies according to the reorganisation resolution, which is also adopted at the general meeting of shareholders.

Peculiarities of the spin-off and transformation of NAPO

Spin-off is somewhat similar to the process of merger. The only difference is that instead of transferring rights and obligations, as well as property and assets to the receiving party, the spun-off company receives them. That is, it becomes an independent business unit. The reorganised company does not cease to function and does not lose its rights and obligations.

Transformation is the reorganisation of a joint stock company, which becomes a limited liability company or a cooperative. The process of transformation is described in detail by federal laws and controlled by them. The purpose of the transformation is determined by the general meeting of shareholders.

Advantages of reorganisation of non-public joint stock companies

Non-public joint stock companies, which used to be CJSCs, operate in large numbers in Russia. They differ significantly from ordinary LLCs in the rules of operation. There are difficulties with independent management due to the complexity of keeping the register of shareholders, which includes full names, addresses and number of shares held by shareholders, as well as data on the transfer of ownership of shares. The register is maintained by special organisations with a licence to carry out this type of activity and with no property or other interest in the JSC. Such service is rendered for money. The reorganisation of NAPO will greatly reduce costs. Other advantages include:

• There is no need to divide the authorised capital, hence the cost of additional registry services disappears.
• The amount contributed by an individual or a legal entity when establishing the organisation is included in the authorised capital, where each participant owns its own part.
• Distribution of risks among the participants.

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