In modern business, choosing your company’s proper organizational and legal form is important. In modern conditions, limited liability companies (LLC) and open joint stock companies (JSC) are popular in Belarus. Each form has its advantages and features related to capital structure, management, registration and government reporting. While LLC companies provide their participants with flexibility in management and risk minimization, JSC companies provide access to a broader range of investors and capital-raising opportunities. Understanding the key differences between these two forms of business organization will help entrepreneurs choose the most appropriate option depending on their goals and strategy. In this article, we will take a closer look at the main differences between a limited liability company and an open joint stock company and their impact on doing business.
What is an LLC and a JSC?
A limited liability company (LLC) and an open Joint Stock Company (JSC) are types of organizational and legal forms of business and types of business entities. Both companies have authorized capital and founders, operate based on the charter, can hire staff and conduct business with other business entities. Let’s look at the main differences between them.
1. Deciding on the Creation of a Company
- Limited Liability Company
The decision to establish a limited liability company is made by the founder or founders at a meeting of the founders. The solution has certain requirements.
- Open Joint Stock Company
The founders of the joint-stock company conclude a written agreement before its creation. Certain requirements also apply to such an agreement. In particular, the agreement defines the size of the authorized capital, which shares will be issued (issued) JSC, and where they will be placed.
The charter of JSC also prescribes information on the number and stock price, their categories, and shareholders’ rights.
2. Participants and Authorized Capital
- Limited Liability Company
Individuals and companies, residents and non-residents of Belarus, including jointly, can open an LLC. An LLC can have 1 to 50 participants.
In a limited liability company, the authorized capital is divided into shares according to the number of founders. The founders determine the size of these shares themselves and prescribe them in the charter of the LLC. According to the size of the shares, the participants of the LLC contribute to the authorized capital. Deposits can be in the form of money, other property, or registered rights. LLC participants are responsible for LLC debts within the value of their contributions to the authorized capital.
- Open Joint Stock Company
The number of participants in the Joint Stock Company is not limited. One person or one shareholder can create a joint stock company.
The Company’s authorized capital is divided into a certain number of shares of the same nominal value. It consists of the nominal value of the shares of the Company. The participants of the Joint Stock Company are responsible for the debts of the Joint Stock Company within the value of their shares. The Company can place its shares among an unlimited number of persons in Belarus and other countries. For example, a Joint Stock Company may sell shares by placing them on the open over-the-counter market or the stock exchange and advertise the sale of its shares.
Shares belong to securities; therefore, unlike LLC, JSC must comply with the state’s requirements related to the issue of securities.
Also, unlike the LLC, the state has determined the minimum size of the JSC’s authorized capital — 400 basic units. As of September 2024, this is 16,000 Belarusian rubles, or about 4,530 euros.
3. The Company’s Management
- Limited Liability Company
The highest management body in an LLC is the general meeting of the LLC participants. Let’s explain that the company’s founders participate after passing state registration.
The executive body in an LLC may be the director or the board of directors, by decision of the LLC participants. The director may be one of the LLC’s founders.
- Open Joint Stock Company
In JSC, the company’s supreme governing body is the shareholders’ general meeting. When a Joint Stock Company has more than 50 shareholders, it creates a board of directors (supervisory board). The charter of the Joint Stock Company defines the exclusive competence of this management body. Exclusive competence means that issues resolved by the Board of Directors (supervisory board) are not submitted for consideration to other management bodies of the company, in particular, to the head.
As in an LLC, the executive management body in a Joint Stock Company may be the director or the management board, the directorate.
4. Attracting Investments
- Limited Liability Company
The opportunities for attracting investments in an LLC are not very large. It may be a change in the composition of the founders through the sale of a share to the investor by the LLC itself or by the participants, as well as an increase in the authorized capital through the admission of a new LLC participant. In all cases, state registration of amendments to the charter is required.
- Open Joint Stock Company
JSC has wider opportunities to attract investments through the issue and sale of shares by both JSC and its participants. To do this, increasing the authorized capital and registering changes to the company’s charter is not always necessary.
Investors can buy shares of the сompany on the stock exchange or on the over-the-counter market, which makes attracting investments a fairly convenient procedure.
5. Disclosure of Information
- Limited Liability Company
In all cases, an LLC does not have to disclose information about its profits and losses, balance sheet, structure and composition of management bodies and other details to an unlimited number of people. In particular, financial and leasing companies created as LLCs disclose information.
- Open Joint Stock Company
State requirements provide for mandatory disclosure of certain information by the сompany. In particular, all JSC’s annual reports must be posted on the unified financial market portal, as well as published in print media, and (or) posted on the official website of the JSC’s annual report no later than one month after its approval.
What are the Advantages of LLC and JSC
The advantages of each form of business creation are determined subjectively and depend on the company’s format, development goals, and development strategy. For example, creating an LLC can be a plus for small businesses. For companies that want to attract investors with securities, creating a joint stock company and releasing securities on the market will be a plus.
Let’s note the advantages of each of these forms of business:
Limited Liability Company:
- A cheap and fast creation procedure.
- The participants determine the size of the authorized capital.
- The participants are responsible for the debts of the LLC within the limits of their contributions to the authorized capital.
Open Joint Stock Company:
- The ability to attract investors through the issue and sale of shares.
- The ability to sell shares independently or through stock exchanges allows for significantly expanding the circle of investors.
Are There Any Disadvantages?
The disadvantages of companies’ organizational and legal forms are a subjective indicator. For each planned business, this indicator is individual and depends on the planned strategy of creating a company and its development. Formally, the following “disadvantages” of these forms of company creation can be noted:
Limited liability company:
- The inability to attract investors by issuing and selling shares.
Open Joint Stock Company:
- The procedure for creating a company is quite complicated.
- The costs of creating an open joint stock company are higher than creating an LLC since the minimum size of the authorized capital is set.
- The costs of operating a joint-stock company are also higher than in the case of an LLC since securities transactions require state registration, payment for participation in exchange trading, payment for the services of depositories where shares are stored in undocumented form (in the form of account entries) and payment of state duties.
How to Choose between LLC and JSC
When deciding between a Limited Liability Company (LLC) and an Open Joint Stock Company (JSC), it is important to consider the pros and cons of each of these forms and the specifics of your business and its needs. An LLC may be the best option for creating a small or medium-sized enterprise that limits the responsibility of participants. At the same time, if your goal is to attract significant investments and expand in the market, creating a JSC can offer more favourable conditions.
In any case, you should carefully consider all aspects of each organizational and legal form to choose the one that best meets your business’s needs and contributes to its success. It is also important to assess the risks and opportunities associated with each form and take into account the country’s competitive situation and economic factors. Choosing the correct organizational and legal form is one of the key conditions for the successful functioning of any business.
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If you have any questions or disputes regarding company’s proper organizational and legal forms of doing business in Belarus, we will be happy to help! Our long-term experience in divident payment will help you resolve any disputes in this area.
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