The Procedure Joint Stock Companies Must Follow When Issuing Securities

A key aspect that differentiates joint stock companies (JSC) from limited liability companies (LLC) and other business entities is the ability of a JSC to issue securities to raise capital. When issuing securities, a JSC is subject to federal laws governing the securities market and regulations of the Central Bank of the Russian Federation. We will discuss these regulations and the procedures for issuing the various types of securities here.

Joint Stock Companies

To review a bit, there are many advantages to forming a joint stock company to conduct business in Russia. A JSC allows for ownership of a business entity while protecting the owners from some level of liability. For shareholders of a JSC, their risk is generally limited to their investment and they are not personally liable for the company’s debts.

A joint stock company must convene a general meeting of its shareholders at least once a year. This meeting is considered to be their higher management body. A public joint stock company must have a board of directors consisting of at least five members. The company’s executive body may be collegiate (board, directorate) and/or “one-person” (director, general director). A joint stock company’s executive body carries out the day-to-day management of operations and reports to the board of directors and the general meeting of shareholders. Once the required initial capital is satisfied, a JSC may issue securities to raise funds for the business.

Types of Securities

A joint stock company may issue bonds and issuer’s option bonds to raise capital, but most commonly issues shares. If the JSC is a non-public company, the shares are only offered to a closed group of investors. If it is a public company, however, the shares are offered to the general public. The main types of shares and how they function are as follows:

  • Common shares. The initial value of each common share must be equal. In general, each common share carries one vote for the shareholder at the annual shareholders’ meeting.
     
  • Preferred shares. JSCs may issue preferred shares, which may have different nominal values and offer the holder priority over holders of common shares for receiving dividends. Preferred shareholders do not have voting rights, however.
     
  • Fractional shares. Under particular circumstances, such as a consolidation of shares, shares may be divided into fractions of a whole share. Fractional share holders have the same rights as common shareholders, but in proportion to their ownership.

A JSC may issue any combination of these type of shares, but are limited to no more than 25 percent of their shares being of the preferred type.

Regulations for Issuing Securities

The issuance of any type of security must be registered with the Central Bank of Russia. Public and non-public JSC should apply to the Central Bank of Russia with a resolution on share issuance and also attach certain documents to the application. The registration of resolution on share issuance with the Central Bank of Russia takes 30 days. The registration of report on share issuance takes additionally 15 days. 

Even JSCs with minimal amount of charter capital are obliged to register the issuance of their shares within one year upon incorporation. All shares issued due to increase of company’s capital, conversion of shares, reorganization of JSC, etc. should also be registered with the Central Bank of Russia. 

 

When the securities are to be offered to the general public, as with a public JSC, the issuer must register a prospectus and disclose financial information about the company, including quarterly reports, financial statements, and other important information as required by the Central Bank. This information must be made public through an approved news agency or website.

Moscow Exchange is the largest exchange group in Russia. The exchange was established in December 2011 by merging the Moscow Interbank Currency Exchange (MICEX) which was used to trade bonds and the Russian Trading System (RTS) that was used for trading shares and was Russia’s leading stock exchange then.

Both public and non-public JSCs must maintain a shareholders’ register in which the holdings of the shareholders are noted. This function must be performed by a licensed registrar.

Jus Privatum Will Guide Your Business

When you work with the experienced corporate attorneys at Jus Privatum to form a public joint stock company, we will be with you every step of the way, from writing your incorporation documents to issuing securities to raise capital. We will make sure you are operating in accordance with federal law and within the regulations of the Central Bank of Russia. We will be your partner in business to help ensure your success as a business entity in Russia. No matter where you are in the development of our business, contact us through the link on this page. We will guide you through the often complex Russian system to see that you do things the right way. Contact us today.

 

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