Different aspects of LLC and CJSC

Short information

As is known, according to the current legislation of the Republic of Azerbaijan, commercial activities are organized through legal entities with various organizational and legal forms. Among these, the most recognized and commonly used forms in the market are limited liability companies (LLC) and closed joint-stock companies (CJSC). Therefore, we present to the readers information about these organizational and legal forms of commercial legal entities, including the similarities and differences between LLCs and CJSCs.

Concept

Thus, a company established by one or more persons (individuals and/or legal entities), whose charter capital is divided into shares of a certain amount defined by the charter, is considered a limited liability company. The participants of a limited liability company are not liable for its obligations and bear risk only to the extent of the value of their contributions related to the company's activities. The company is not responsible for the obligations of its participants to third parties.

A company whose charter capital is divided into a certain number of shares is considered a joint-stock company. Only joint-stock companies have the right to issue shares. The participants (shareholders) of a joint-stock company are not liable for its obligations and bear risks only to the extent of the value of the shares they own in relation to losses incurred by the company's activities. A closed joint-stock company is one where shares are distributed only among its founders or a predetermined group of other individuals. Such a company cannot conduct an open subscription for the shares it issues or offer them to an unlimited number of individuals in any other way.

Registration Procedure

Commercial organizations can only operate after being registered with the state. Operating without state registration leads to liability as specified by law. The state registration procedure and required documents for a CJSC and LLC are almost identical, taking into account certain differences.

Charter Capital

There are no specific legal requirements regarding the minimum amount of charter capital for a LLC. This leads to the conclusion that the charter capital of an LLC may consist of the smallest unit of national currency (nominal national currency unit), which is “1 qəpik”. If the payment of the charter capital of the LLC is conditioned by the charter, it can be paid within 3 months.

For a Joint Stock Company, however, the charter capital determines the minimum amount of assets that guarantees the interests of the company's creditors. The minimum threshold for the charter capital of a CJSC is set at 2000 manats. The CJSC must ensure the registration of shareholders no later than 30 calendar days from the date of its registration, meaning that within 30 calendar days from the date of registration, the shares forming the charter capital must be issued.

Participants

The number of participants in an LLC and a CJSC must not exceed the limit established by legislation. Specifically, both in an LLC and a CJSC, the maximum number of participants should not exceed 50 individuals or legal entities.

Otherwise, the LLC must transform into a open joint stock company within one year, and after this period, if the number of its participants is not reduced to the legally established limit, it must be dissolved through court proceedings.

On the other hand, the sole participant of an LLC or CJSC cannot be another company consisting of a single person.

Management

The management bodies of the LLC:

(i) The supreme body - the general meeting of participants; (ii) The board of directors of the company (or supervisory board) and/or the audit commission (inspector); (iii) The executive body that carries out the current management of its activities in the LLC and reports to the general meeting of participants (collegial and/or sole executive).

The management bodies of the CJSC:

(i) The supreme body - the general meeting of shareholders; (ii) The board of directors (or supervisory board) that exercises overall management and oversight of the company's activities (established in public interest entities); (iii) The executive body that carries out the current management of its activities in the CJSC and reports to the general meeting of participants - collegial (management board, administration) or sole (director, chief executive); (iv) An inspection commission (inspector) may be elected (appointed) to oversee the financial and economic activities of the CJSC; (v) If provided for in the charter of the JSC, an audit committee may be established by the board of directors (supervisory board) for the development, implementation, and organization of auditor oversight of the internal audit policy and strategy in public interest entities.

Dividend Payment

In both the LLC and the CJSC, the decision on dividend payment (distribution of net profit obtained from activities among participants) is made by the general meeting, which is convened at least once a year. The decision of the general meeting may specify whether the profit will be distributed in full or in part.

Open report on the results of operations

Except for cases stipulated by legislation, the company is not required to publish information about the results of its operations (open report). However, a CJSC is obliged to publish its annual report and financial statements (with the exception of micro and small business entities) for public access.

Time required for registration

The state registration of an LLC is completed no later than 2 days. The time required for the state registration of a CJSC is similar to that of an LLC. The only difference here pertains to the registration of shareholders with the National Depository Center following the date the CJSC is registered. Thus, the CJSC must ensure the registration of shareholders within no later than 30 calendar days from the date of its registration. The state registration of the CJSCs shares and the registration of share ownership requires a total of 42 business days (10 business days for reviewing documents for state registration and approval of the issuance prospectus + 7 business days for placing shares + 10 business days for submitting the report on the results of the share issuance + 15 business days for approval of the report).

Costs for formation

The costs for the state registration of an LLC include (i) a state fee of 15 manat, (ii) a fee of 3 manat for the certification of the signature authenticity of the legal representative indicated in the application for the state registration of commercial legal entities, a fee of 1.5 manat for the verification of the accuracy of translations of documents from one language to another per page, a fee of 1.5 manat for certifying the accuracy of copies and extracts from the documents, and notary fees of 0.5 manat for each additional page, (iii) approximately 35-50 manat for obtaining a seal, and (iv) approximately 25 manat for obtaining an ASAN signature.

The costs associated with the creation of a CJSC are similar to those of an LLC, with the main difference being in the expenses related to the state registration of shares and their enrollment in the registry. Specifically, a one-time fee of 5 manat is required for opening a deposit account, a fee of 20 manat for providing an extract from the deposit account for all securities, a fee of 1 manat for presenting an extract for each individual security from the deposit account, and a charge of 0.2% of the amount paid as dividends during the calculation of dividends.

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Note: The information contained in this article should not be construed as legal advice or a legal opinion.

Our Company provides all professional legal services related to the registration of both types of commercial legal entities. We are pleased to offer you support in this area.

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