Joint Stock Companies in Russia

A joint stock company (JSC) provides ownership rights with limited liability. Shareholders of a JSC are not generally liable for its debts and their risk is limited to their investment. There are two types of JSC: (1) closed joint stock companies; and (2) open joint stock companies. Both individuals and legal entities may own shares in a JSC.

A closed JSC may have a maximum of 50 shareholders. If the number of shareholders exceeds 50, there is a grace period of one year during which it may be converted to an open JSC. An open JSC may have an unlimited number of shareholders.

The shareholders in a closed JSC have the same right of first refusal that LLC Participants have. If a shareholder in a closed JSC offers to sell their shares to a party who is not a shareholder, the remaining JSC shareholders have a right of first refusal at the price offered to that party. The shareholders of an open JSC lack this right of first refusal, thus making a secondary market possible in which the company's shares may be freely traded.

An anti-dilution provision in the law allows both open and closed JSC shareholders to acquire newly issued shares in proportion to their existing shareholdings.

Formation

The JSC charter must satisfy a number of requirements. In addition to the name and business address, the charter must specify whether the JSC is open or closed. It must specify, among other things:

1. The amount of the initial capital;
2. The number, nominal value and classes of shares;
3. The composition and powers of the governing bodies of the JSC;
4. The procedures for shareholders meetings;
5. Whether a government entity has any special voting right ("golden share").
6. Other provisions required by law.

Both types of JSCs must maintain a shareholders' register in which the holdings of the shareholders are noted. Once the number of shareholders exceeds 50, this function must be performed by a licensed registrar.

Initial Capitalization

The initial capitalization requirements are modest. The charter capital of an open JSC must be at least 1,000 times the statutory monthly minimum wage. As of January 2007 this works out to 100,000 rubles. A closed joint stock company must have a minimum charter capital of 100 times the minimum monthly wage or 10,000 rubles.

The first 50% of the JSC charter capital must be paid in within three months of registration and the remainder by the end of the first year.

Other Permitted Issues

A JSC may issue shares, bonds, and options. All such securities must be registered with the Federal Service for the Financial Markets of the Russian Federation (the "FSFM"). A JSC may issue both common and preferred shares although preferred shares may not exceed 25% of its charter capital.

Governance

The General Shareholders Meeting is the governing body that holds ultimate authority in a JSC. Each common share carries one vote at the General Shareholders Meeting and most decisions require a simple majority. Cumulative voting is permitted and certain actions require a 75% majority.

All JSCs must have an Executive Body in addition to the General Shareholders Meeting. The Executive Body may be a single person or a committee.

Any JSC may, and an open JSC with more than 50 shareholders must, have a board of directors. The charter must set forth the powers granted to the board. In JSC's without a board of directors, governance powers must be granted to the General Shareholders Meeting.

In addition to the foregoing governing bodies, a JSC must have an auditor. The auditing function can be performed by an Internal Auditing Commission or an Internal Auditor. The auditor must be elected by the shareholders.

Registration

The general registration requirement is the same as for an LLC, the only additional requirement in respect of JSCs being the registration of the issuance of the JSC shares with the FSFM.