Issues of share disposal
The legislation of the Republic of Armenia establishes multiple legal frameworks for the formation of business entities, ensuring flexibility for entrepreneurs in selecting the most appropriate structure for their operations. Among the primary forms are Limited Liability Companies (LLCs) and Joint-Stock Companies (JSCs). Joint-stock companies, in turn, are categorized into Open Joint-Stock Companies (OJSCs) and Closed Joint-Stock Companies (CJSCs), each governed by specific regulatory and operational principles.
Entrepreneurs intending to engage in economic activities in Armenia often face the challenge of choosing the most suitable organizational and legal form for their business, as this decision has significant implications for corporate governance, financial liability, investment opportunities, and regulatory compliance.
To provide a clearer understanding of these legal structures, we will examine the key characteristics, advantages, and disadvantages of each form. A well-informed choice at the outset of business development can facilitate efficient operations, risk mitigation, and long-term sustainability.
| Feature | LLC | OJSC | CJSC |
|---|---|---|---|
| Charter capital | Participants and shares | Stockholder/shareholder and stocks/shares | Stockholder/shareholder and stocks/shares |
| Stocks | Not applicable | Can issue shares/stocks | Can issue shares/stocks |
| Who can be shareholder/Participant | Every physical and legal entity | Every physical and legal entity | Every physical and legal entity |
| Liabillity of the shareholders/ | Whitin the framework of the shares | Whitin the framework of the shares | Whitin the framework of the shares |
| Number of shareholders | Maximum 49 participants | Number of shareholders is not limited | Maximum 49 shareholders. |
| Branches/Representaition | Might have both | Additionally, might establish daughter and depending companies. | Additionally, might establish daughter and depending companies. |
| Preemptive rights in case of sale of shares of other shareholders | A participant is entitled to the preemptive right to purchase shares sold by other participant of that Company. | No such right is provided for the shareholders | A shareholder is entitled to the preemptive right to purchase shares sold by other shareholders of that Company. |
| Preemptive right to new shares placed by the Company | Not applicable |
The shareholders of the company shall have the preemptive right to purchase new shares in proportion to their shares in the equity capital during the period specified in the charter. The meeting of the company is entitled to decide not to apply (suspend) the preemptive right of the holders of the voting shares, as well as to set the validity period of that decision if the voting shares are distributed through an open subscription, and payment for the distributed shares is made in cash. |
The shareholders of the company have the preemptive right to purchase new shares in proportion to their shares in the equity capital during the period specified in the charter. |
| Subscription of shares | The General Meeting may decide to increase the company's charter capital, based on the application of a third party. |
A company has the right to conduct an open subscription for its placed shares and freely sell them under the conditions established by law and other legal acts. Additionally, it may also conduct a closed subscription for its placed shares. |
A company is not permitted to conduct an open subscription for its placed shares or otherwise offer them for acquisition to an unlimited number of persons. |
| Increase of equity capital | The General Meeting may decide to increase the company's charter capital through additional contributions from the company's participants |
The company may make a decision on the distribution of additional shares only within the limits of the number of shares announced in the charter and only if the previously distributed shares are fully paid. |
There is no such limitation set for the company. |
| Shares granted to employees | N/A |
The company is entitled to acquire the employee's shares subject to alienation at the market price, but not less than the nominal value of the given shares, if the possibility of managing the shares or derivative financial instruments distributed (provided) among the employees was limited under the charter or the employee share ownership plan. |
In case of forced alienation of the employee's shares in the cases provided by law, the company has the preemptive right to acquire the employee's shares to be alienated at the market price of the given shares, but not less than the nominal value. |
| Convening of the general meeting | The company shall notify its participants about the convening of the meeting at least 20 days before the day of convening the meeting, unless other period is stipulated by the Charter. |
The company shall notify its shareholders about the convening of the meeting at least 21 days before the day of convening the meeting. |
The deadlines for notifying the shareholders about the convening of the meeting are defined by the charter. |
| Requirements set for board members | No such restriction applies. |
The company, at least one-third of the board members must be independent. Additionally, the roles of the chairman of the board and the director (general director) cannot be held by the same person. |
No such restriction applies. |
| Request to form an audit committee by the board of directors | N/A |
In open joint-stock companies an audit committee by the board is formed. The members are board members. |
N/A |
| Request to form a Control Committee | If the number of participants exceeds 20, establishing a control committee is mandatory; otherwise, it is optional. |
A control committee is elected. |
A control committee may be elected |
