Differences between an LLC and a non-public JSC: which form to choose for your business

Limited liability of participants (shareholders)

In both LLCs and JSCs, participants (shareholders) are not liable for the company's obligations and bear the risk of losses related to its activities only up to the value of their respective shares.

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Corporate nature

Both LLCs and JSCs are corporate legal entities where participants (shareholders) have the right to participate in the management of the company, including voting on key business decisions. Both structures require a system of governance, including a supreme body (general meeting of participants/shareholders) and executive bodies responsible for the day-to-day management of the company.

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Formation of authorized capital

Both LLCs and JSCs establish authorized capital, divided into shares, which defines the scope of the participants' (shareholders') corporate rights.

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Costs of formation and operation
Establishing and operating a JSC is generally more expensive than an LLC due to the requirement to maintain a shareholder register via a registrar or depository, compliance with securities market regulations, and more complex corporate procedures. For an LLC, the costs of formation and ongoing operations are typically lower, and administrative procedures are less burdensome.

Complexity of corporate procedures
Acquiring shares in a JSC or interests in an LLC may require following specific corporate procedures, such as providing notifications, respecting pre-emptive rights, or obtaining consent from the company or other participants. In a JSC, these are compounded by securities market regulations and the internal procedures of the registrar/depository, often making transactions more formal than in an LLC. The process for convening and holding meetings in a JSC is strictly regulated by law, and failure to comply can lead to decisions being challenged. In an LLC, these procedures are largely defined by the company's charter and are subject to less stringent regulation.

Access to information
In a JSC, access to the register and the disclosure of information are strictly governed by securities laws, ensuring a higher level of transparency and protection for shareholders. In an LLC, the scope and procedure for accessing the list of participants and corporate documentation are determined by LLC legislation and the company's charter. This offers greater flexibility but also creates a risk of restricted access to information, which can increase the likelihood of corporate disputes between participants.

Exit of a participant
In a JSC, exiting the company is typically achieved by transferring shares. A shareholder may demand that the company buy back their shares in cases provided for by law. In an LLC, a participant may have a direct right to withdraw from the company (if explicitly provided for in the charter), as well as the right to demand that the company buy back their interest in specific cases established by law, such as when the company refuses to consent to the transfer of an interest.

Transfer to third parties and right of first refusal
In a joint-stock company (JSC), the articles of association may require the consent of shareholders and/or the company for the transfer of shares to third parties, and may also provide for a right of first refusal for shareholders and/or the company itself. In a limited liability company (LLC), requirements for participant consent for the sale of a stake to third parties may also be introduced, and a right of first refusal applies when a participant sells their stake to third parties, allowing other participants and/or the company to purchase it.

Recording ownership
In a JSC, shareholder rights are evidenced by entries in the share register, which is maintained by a registrar or depository. The procedure for maintaining the register is regulated by the Bank of Russia. In an LLC, information about participants and their stakes is recorded in the Unified State Register of Legal Entities (EGRUL) and in an internal list of participants, the maintenance and storage of which is the responsibility of the company's sole executive body, unless otherwise provided by the articles of association (for example, maintenance of the list may be delegated to a notary).

Number of participants
There is no limit on the number of shareholders in a JSC. In an LLC, the number of participants cannot exceed 50; if this limit is exceeded, the company must reorganize into another form (usually a public joint-stock company) within one year, otherwise it may be liquidated by court order.

While JSCs and LLCs are similar in their legal nature as corporate entities, they are designed for different business models and corporate governance structures. An LLC is generally suitable for companies with a limited number of participants, a relatively simple ownership structure, and a need for more flexible, less formal corporate procedures. Conversely, a JSC is advisable when a more complex ownership structure is anticipated, involving active use of investment instruments, the attraction of new investors through shares, and a more detailed regulation of shareholder rights. However, the more complex and formalized corporate governance model of a JSC, compared to an LLC, typically entails stricter requirements for transaction procedures and the maintenance of ownership records.

The choice between an LLC and a JSC should be based not on a formal preference for one legal form over the other, but on the actual goals of the business founders.

We recommend considering the registration of a JSC if:

• a significant number of participants and a multi-level ownership structure (including indirect ownership, investment vehicles, and options) are planned;
• the business is focused on the issuance and circulation of shares, including the use of options and convertible instruments, for which JSC and securities market legislation provides more formalized and well-developed mechanisms (in an LLC, similar structures require more complex contractual arrangements);
• detailed regulation of shareholder rights in the articles of association and shareholders' agreements is planned, including disproportionate distribution of voting rights and dividends;
• the company plans to attract investors in the future through the issuance of shares and other equity instruments (including without a public offering).

We recommend considering the registration of an LLC if:

• minimal administrative costs are required (an LLC avoids expenses related to a registrar, maintaining a share register, and complying with additional Bank of Russia requirements);
• a limited number of participants and a relatively simple ownership structure are planned;
• the business does not involve working with shares, options, or convertible instruments, and investment is planned to be attracted through the entry of new participants into the authorized capital, additional contributions, or other contractual structures;
• corporate procedures are intended to be carried out with minimal time expenditure (convening meetings, adopting and documenting decisions);
• a flexible mechanism for member exit is required (the right to withdraw and the company's obligation to buy back shares in cases provided for by law and the articles of association).

If you are choosing between registering an LLC or a JSC, considering a change to your existing entity type, and want to account for not only the legal differences but also the practical implications for ownership structure, corporate governance, and investment, the C Cases team is ready to analyze your situation and propose an optimal model tailored to the owners' goals and business development plans.

• Civil Code of the Russian Federation (Part One) No. 51-FZ dated November 30, 1994;
• Federal Law No. 14-FZ dated February 8, 1998, "On Limited Liability Companies";
• Federal Law No. 39-FZ dated April 22, 1996, "On the Securities Market";
• Federal Law No. 208-FZ dated December 26, 1995, "On Joint-Stock Companies."