The essence of a Limited Liability Company
Limited liability companies (LLC) are referred to as entities with corporate structures where the members (shareholders) of which cannot be held personally liable for the company's debts or liabilities meaning that only the assets of the business itself are at risk. For this reason this type of company is considered to be „limited liability”, while combining characteristics of a corporation and a partnership as limited liability feature is similar to that of a corporation and the availability of flow-through taxation to the members is a feature of partnerships. LLC as a viable option, when the person wishes to establish a trading company or a small business locally or internationally, within certain limits.
The essence of a Joint-stock company
In case of a Joint Stock companies (JSC) shareholders of such business entities have unlimited liability for their companies’ debts. This means that shareholders of Joint Stock Company have limited liability or a liability limited by guarantee or shares. Usually the shares of a JSC are transferable and may be traded on a legal exchange between private parties (private JSC) or publicly (public JSC). A joint stock company can raise large amount of capital by issuing its shares. Usually joint stock companies are established for the purpose of operating business on a large scale by one or more persons. It is represented by a Management Board, consisting of at least one person and can also be represented by a proxy.
Differences between LLC and JSC
JSC and LLC are the two most common company types nowadays. There are some significant differences between these two forms of legal entities.
JSC issue stocks and bonds per procuration of the shares which may be offered to public unlike LLC that does not issue stocks or bonds. Within the frames of JSC share transfer may be executed upon the agreement of both parties, when it comes to LLC, they may be transferred upon an agreement certified by a notary provided that such agreement is executed within the approval of 75% of the shareholders that represent 75% of the capital. When it comes to LLC, the capital is not divided equally, however for JSC the capital is equally divided.
Companies’ fields of activity also may vary. LLC does not operate in such business fields as banking and insurance and in other fields that are determined by specific laws unlike JSC which may operate in every field. For this reason financial institutions find the structure of a JSC more credible and influential. One more formal difference between JSC and LLC is that the first one may be incorporated for an indefinite period unlike the second one which shall only be incorporated for a period of 99 years. As for JSC, the minimum shareholder number is 5 and there is no determination related to maximum shareholder number. To the contrary, the minimum shareholder number for LLC is 2 and maximum is considered to be 50.
However, these two types of companies have something in common. There are a few similarities between JSC and LLC. Both can be incorporated by filing articles of association with the State Registry. Both may be foreign-owned, having shareholders from abroad. In both cases shareholders’ liability is limited to their contributions. Both require at least one investor appearing as a natural person or a legal entity. The investor can be a resident or non-resident as well. The annual accounts which consist of the balance sheet, profit loss accounts and the annual report must be approved by the shareholders within the 6 month period after the closing of the financial year.
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