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Reorganization the JSC into a LLC

Running business in form of a joint stock company has some advantages, but at the same time there are certain features.

A Joint Stock Company is a successful organizational-legal form of running big business, and if you need to attract additional funds from issuance of shares. A JSC is a very expensive and complex form of running small and medium business. Running business in the form of a JSC is just unattractive, taking into account changes connected with entry into force the new law «On Joint Stock Companies». In this case it is possible to transform it into other forms of management. This right is given to economic partnerships under the Civil Code. Changing the organizational-legal form is a transformation and provides termination of economic partnerships and transfer of all its rights and obligations to its successors.

The closest organizational legal form to the JSC is a Limited Liability Company (LLC).

Advantages of transformation the Joint Stock Companies into a Limited Liability Company:

  • costs to service shares (to pay the registrar (custodian), certificates, etc..), the cost of convening the general meeting disappear;
  • unnecessary controlling body, SEC disappears, and there is no need to report to him;
  • simpler procedure of increase in the authorized capital in comparison with the JSC;
  • minimizing of the risk of falling a victim to a hostile acquisition;
  • solving problem with the complexity of making decisions on issues which belong to the exclusive competence of the general meeting;
  • an absence of necessity to reveal a significant amount of information about the company.

However, the form of management of the company in a form of the general meeting and executive body (the director) is saved. Also the responsibility of members of the company is limited by the size of their contribution as in the JSC.

Of course, it is necessary to take into account that the number of members of the LLC can’t be over 10.

It is necessary to consider all factors, advantages and disadvantages of each form, as well as the costs of the procedure of the reorganization while deciding on the reorganization.

However, making a conclusion from the current practice, business owners often come to a decision of transformation the JSC into a LLC.

A JSC terminates and a LLC becomes its successor during the process of transformation.

The company’s name can be the same taking into account changes of the organizational-legal form.

The procedure of transformation is quite long and requires certain costs. However, in most cases it is justified.

 
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