One of the major innovations in the legislation on joint stock companies that become effective on May 1, 2016, is deletion of the existing requirement that the quantitative composition of shareholders of PrJSC can not exceed 100 shareholders. Until now, for many public joint stock companies that have a lot of minority shareholders (mostly “inherited” them after privatization) this particular provision of the Law of Ukraine “On Joint Stock Companies” was the main obstacle to changing the type of a joint stock company into PrJSC. Now this restriction will be removed, and a number of companies have already put change of the type of company on the agenda of annual general meetings of shareholders.
It is expected that by the end of the year other companies that do not want to perform still more onerous requirements of the new provisions of the law to PrSC, including the requirements on listing, will follow their example. According to some estimates, until January 1, 2018 up to 2/3 of the currently existing public joint stock companies (and possibly more) will change the type of company into private. Probably, this is the purpose of the legislator and the regulator: to stimulate transformation of the current “quasi-public” joint stock companies, clearly not up to European standards of publicity, into private and at the same time to improve the quality of those public companies that wish to retain the status. At the same time, when changing the type of company, public companies must be prepared for the requirements of minority shareholders, who will vote against such a decision, on compulsory redemption of their shares (the right is envisaged in the law).
The main differences in the status of PrJSC and PJSC include the following three competences:
- PJSC can make both public offering (i.e. not predetermined group of persons) and private offering, while PrJSC − only private offering. Therefore, when it becomes private, the company loses the possibility to raise additional capital from an unlimited range of foreign investors;
- shares of PJSC can be bought and sold on the stock exchange, while shares of PrJSC are not do not circulate on the stock exchange, except for sale through auction on the stock exchange. Thus, when changing its type into private, the company loses access to the exchange market (however, as shares of many current PJSC are listed on the stock exchange only formally, and no real transactions with their shares are carried out on stock exchange, the stock market will not feel their withdrawal);
- shareholders of PJSC can alienate their shares without consent of other shareholders of the company, and the charter of PrJSC may envisage a pre-emptive right of shareholders to purchase of shares of the company that are offered by the owner for alienation to a third party. Under the new rules, a pre-emptive right may be stipulated in the charter of PrJSC only if at the date of the relevant decision the number of shareholders does not exceed 100 persons. Thus, restrictions on the disposal of their shares do not threaten the shareholders of PJSC, which number exceeds 100.
In addition, change of the type of company into private will permit to avoid burdensome requirements to pass the procedure of inclusion of shares in the stock register and remaining on the register on at least one stock exchange of Ukraine (i.e. to maintain as regards its shares the status of listed securities with performance of very stringent requirements of the legislation and stock exchange for such securities), to ensure mandatory audit of the annual financial statements by an independent auditor, every year to re-elect the supervisory board consisting of at least 5 persons and include in it at least two independent directors, to create ad hoc committees (committee on audit, committee for determining remuneration of officials of the company and nominating committee). In our opinion, most PJSC will only benefit from change of the type of company into private.
In general, the above changes refer to PJSC regardless of the state share in their charter capital. While according to Art. 1(2) of the Law of Ukraine “On Joint Stock Companies”, activities of state joint stock companies and state holding companies, where the sole founder and shareholder is the state represented by the authorized public agencies, are governed by the Law taking into account the peculiarities stipulated by special laws. Therefore, legal status of such joint-stock companies will differ significantly from the usual PJSC.
According to the Regulations on the functioning of stock exchanges, requirements regarding the minimum portion of the issuer’s shares in free circulation (not less than 10% of shares of the second level of listing, and not less than 25% of shares of the first level of listing) do not include the shares owned by the state. Thus, PJSC that belong to the state will not have to necessarily list shares, or re-register into PrJSC.