Differences between a public (open) joint stock company and non public (closed) joint stock company

According to the Companies Act (“Off. Herald of RS”, Nos. 36/2011, 99/2011, 83/2014 – other law, 5/2015, 44/2018, 95/2018, 91/2019 and 109/2021) (hereinafter “The Act”) a joint stock company is a company whose share capital is divided in stocks held by one or more stockholders who are not liable for the company’s obligations, except in the case of Piercing the Corporate Veil as well as due to the consequences of the Company’s Deletion from the Register in the Event of Compulsory liquidation. The Act regulates the notion of Joint Stock Company in sufficient detail, however does not explicitly mention the types of Joint Stock Companies, regardless it does undoubtedly distinguish the difference between Public and Non Public Joint Stock Companies in terms of i) manner of establishment, ii) characteristics, iii) obligations and iv) ceasing to be a public joint stock company.

I MANNER OF ESTABLISHMENT

Per the Act, there are two manners when establishing a Joint Stock Company (ie two types), firstly – without public subscription of shares (payment of stocks) when the founders buy all shares (stocks) when founding (Non Public) and secondly – when the founders subscribe part of shares (stocks) and publish a public offer to buy other shares (stocks) thus raising capital (Public).

II CHARACTERISTICS

The most important characteristics of a Public (open) Joint Stock Company and the basic difference in relation to the Non Public (closed) one are the following:

  • to be able to issue shares (stocks) on the securities exchange market by public offering or in another public way;
  • that it is under the special supervision of the Securities Commission;
  • as well as to have the obligation to report to the public and to the Securities Commission on important business events, financial reports, etc.

III OBLIGATIONS

Furthermore, the range of obligations on the part of the Public (open) Joint Stock Company is not insignificant. Namely, the Law on Capital Market (“Off. Herald of RS”, Nos. 31/2011, 112/2015, 108/2016, 9/2022 and 153/2022) (hereinafter “The Law”) prescribes the obligation to prepare, approve and publish a prospectus for the public offering of securities, reporting requirements of issuers, etc. Per the Law, an issuer means a domestic or foreign legal person which among other, issues or proposes to issue securities or other financial instruments, and it is specifically prescribed that a Public Company (Public Joint Stock Company) shall be an issuer when it meets at least one of the following conditions – that has successfully completed a public offering of securites in accordance with the prospectus approved by the Securities Commission or/and whose securities are admitted to trading on a regulated market, or MTF in the Republic of Serbia.

IV CEASING TO BE A PUBLIC JOINT STOCK COMPANY

Finally, a Public (open) Joint Stock Company becomes a Non Public (Closed) Joint Stock Company and vice versa, in accordance with the Act, as well as with the Law, and this change does not represent a conversion from one legal form into another legal form.

However, in situations where the company opts and renders a Decision of the competent body to converse from one legal form into another (eg from a Joint Stock Company to a LLC), it is necessary to take into account the nature / type of Joint Stock Company. The Law stipulates that if a Public (open) Joint Stock Company converses its legal form, it must meet the conditions for termination of the status or cessation of a Public Joint Stock Company prescribed by the Law. In addition, the Business Registers Agency, in order to approve the conversion of the legal form refers to the application of the Articles 70 and 123 of the Law and requests the attachment of the Decision of the Securities Commission on deleting issuers from the Register of Public Companies (“Decision”), and only after obtaining this Decision and other necessary documentation a registration application for a change of legal form may be submitted. Also, this Decision is preceded by the adoption of the Company’s Decision on the removal of shares (stocks) as well as the adoption of the Decision of the Belgrade Stock Exchange on the exclusion of shares (stocks).

Accordingly, the General Meeting of the issuer or Public Company may adopt a Decision on removal of shares (stocks) from the regulated market or MTF by votes representing at least three quarters of the total number of shares (stocks) with voting rights, however, the memorandum of association may set forth a higher majority for adopting this decision. The Law stipulates the fulfillment of cumulative conditions for the adoption of the Decision on the removal of shares (stocks) from the regulated market, as follows:

  1. the Public Company has less than 10.000 shareholders;
  2. in the period of six months preceding the day of decision, the trading volume of shared being removed from the regulated market or MTF is less than 0.5% of the total number of issued shares;
  3. at least in three months of the period referred to in point 2) of this paragraph, the monthly trading volume of the shares on the regulated market or MTF is less than 0.5% of the total number of issued shares.

Furthermore, the Decision on removal of shares from the regulated market or MTF is valid only when it includes an irrevocable statement of the Company by which the Company commits to buy out the shares from the dissenting shareholders, on their request, with adequate compensation, whereas this right is granted also to shareholders absent from the General Meeting.

To conclude, the first step of the procedure for converse from one legal form to another (when being a Public Joint Stock Company) is adoption of a Decision on removal of shares from the regulated market or MTF which is submitted to the Business Registers Agency for registration as well as publication, then with the rendering of the Registers decision these two documents are being submitted to the Belgrade Exchange Market for its rendering of the Decision on the Exclusion of shares. These would be preconditions before addressing the Securities Commission in order to remove the issuer from the Register of Public Companies. Once the Securities Commission decides, this referred decision is than attached when submitting a registration for converse of a Public Joint Stock Company from one legal form to another.

Finally, it is of importance to know about the impact of initiating bankruptcy on the status of a Joint Stock Company. Namely, at the moment of opening of the bankruptcy, the Public Joint Stock Company becomes a Non Public Joint Stock Company due to the Decision on exclusion from the stock exchange rendered by the Stock Exchange Market as a consequence of opening the bankruptcy.