In the business sector, there are many forms of organizations that combine or share capital, depending on the task of the company. On the legal side, each is regulated by its list of laws aimed at transparency and honesty of work with respect to owners and the state. The joint-stock company is no exception and also refers to the form in which the founders must follow the letter of the law. Particular attention is paid to large transactions.
Big deal concept
When doing business, it is imperative to know the legal framework for major transactions for joint stock companies. At the same time, do not confuse it with the regulatory rules for limited liability companies.
A major transaction for a joint-stock company is the process of buying or selling assets that comprise 25% of the amount on the company's balance sheet. Only the entire board of directors or the owners can conduct such an operation. A clear framework is established for joint-stock companies that enable the CEO to conduct transactions without approval if their total value does not exceed 25%. In all other cases, the heads of the company gather and decide on the following conditions:
- subject of bargaining;
- cost;
- parties to the transaction;
- other conditions specified in the charter (individually).
In each of these cases, the board of shareholders may refuse to approve one or more sales (purchases). Thus, the plans (decision) of the general director are canceled. The law on joint-stock companies on a major transaction has similar sides and differences with the rules, which are aimed at resolving relations in limited liability organizations. There are several examples:
- The board of directors of the joint-stock company meets only if the transaction is 25% of the amount on the balance sheet of the enterprise, in contrast to the LLC, where the sale (purchase) of 25% of the value of the company is considered large.
- In organizations with the LLC form, it is allowed to amend the charter relating to the list and size of the contract in monetary terms. In AO, such operations are prohibited.
- It is forbidden for an AO to include in the charter the possibility of accepting such transactions unilaterally without the presence of all owners. In LLC, such a function is allowed.
These are only superficial differences that allow you to regulate relations in companies with different organizational forms.
Types of major transactions
There is an incomplete list of types of transactions that can be considered large. Basically, they include processes under a loan agreement, collateral, purchase, loan or guarantee. Clarifications on this issue are contained in the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 28 dated May 16, 2014, as well as a similar interpretation from the RF Armed Forces No. 27 dated June 26, 2018.
These documents provide an exhaustive list of all transactions that are considered large in the conditions of a joint stock company and require the presence of all directors (owners). It is important to remember the following. A major transaction for a joint-stock company is not deemed to be financial processes related to the ordinary economic activities of an enterprise.
This includes buying raw materials for production, selling manufactured products, obtaining loans to pay for trading operations. In any of these cases, the presence of the owners is not required, and most of the transactions take place in working order.
Major processes include the following:
- purchase and sale of secondary products (equipment, buildings, territories);
- amortization;
- credit;
- giving;
- pledge of property;
- barter;
- surety.
In addition, this includes all transactions that are indirectly related to the transfer of buildings, equipment or the territory of another company.
If the cost exceeds 25% of the book amount, then the approval of a major transaction in AO is carried out without fail with all the owners of the company.
The main differences between LLC and JSC
There are a lot of differences between organizations with the forms of LLC and JSC, which relate to the procedure for processing large transactions. Which ones? Consider below.
A major AO transaction is completed after overcoming the 25% threshold. If for LLC this concerns the total value of the company for the reporting period, then for companies with the form of AO only the book amount in real time is considered.
At the same time, only limited liability companies can change the monetary indicator and the percentage of a major transaction. This makes it possible to carry out large-scale business operations without coordination with the other owners of the company, and therefore the joint-stock company is considered to be a more secure form from the financial side.
Base for comparison
The procedure for approval of a major transaction of JSC requires compliance with clear rules, which mainly relate to the cash amount of the transaction and 25% of the balance sheet of the company. It is about comparative value and valuation.
In the case of an LLC, everything is a little more complicated, because a transaction receives a large status only if its price crosses the line of 25% of the company's value. This is quite difficult to determine, because in addition to assets there are indicators on the territory and buildings, there are loans, debts, raw materials, unsold products, etc. All this significantly affects the estimated value of companies, reducing it and thereby expanding the list of large transactions if the threshold is set at 25% and has not changed owners in the charter.
In the case of the form of AO, everything is a little better, because here only the balance sheet figures for the reporting accounting period are taken into account. That is, income and expenditure of money supply are not taken into account, but the total amount (current and non-current assets) is deducted. It is worth noting the following. Net profit does not participate in the determination of a major transaction, since it can be freely distributed as income between owners, used as a cash “pillow” for modernizing an enterprise, purchasing raw materials and other transactions.
Objects for comparison and examples
In the case of the object of comparison, the joint-stock company acts according to similar rules prescribed for the regulation of the LLC. The law on joint-stock companies in a major transaction contains clear rules that must be observed when conducting financial procedures.
For example, in cases when real estate is purchased, you should compare its value specified in the contract with the organization's cash balance. If the price exceeds 25%, then the owners are going to make a decision about the transaction. It is important to remember that the price of real estate does not include fines, penalties, forfeits and other charges.
Completely in this scheme will be able to figure out a specific example. Let JSC “Vegetables”, engaged in the cultivation and sale of goods, decide to purchase an additional building to expand production. As of September 30, 2012 its cost is 10 million rubles. Next, the company’s balance sheet is calculated for the current period until the date the property is priced.
The question may arise: “A major transaction for AO: how to calculate?”. This is easy enough to do. Money supply is calculated for the last reporting date until September 30, 2012. This does not include future sales costs, debt and future expenses.
As a result, the company's cash balance for the reporting period is about 30 million rubles. 10 000 000 rub. (value of real estate) of this amount is 33.3%, which translates the transaction into the status of "large" and requires a decision on it from all owners of the company.
Approval of a major transaction in AO
If the financial process after calculations has been classified as large, then the owners of the organization are required to collect. At the meeting, a decision is made on the implementation of the contract or on its cancellation.
A sample approval of a major transaction in an AO will be described later.
The decision-making process takes place in a simple and organized manner. After the advantages of the transaction and the further opportunities that have been opened after its implementation have been presented, the board of directors votes. As a result, everything is decided by the majority of those present.
The design requirements relate to the documentary part, where the names of all people involved in the process on both sides should be indicated. Moreover, if the transaction is large, then all owners of the company who made a decision in its favor are included in the contract. Next, the item and the cost of the sale / purchase are indicated. The last clause of the contract is the additional conditions that apply to a major transaction with an AO interest.
Special rules
There are special rules for a joint stock company that distinguish this form of organization from others. First of all, this applies to people who can make decisions regarding the implementation of large transactions, the value of which ranges from 25 to 50% of the company's cash balance. Basically, the board of directors or shareholders meeting approves or rejects the proposal.
Only those persons who reserve the right to manage the company and are not in observer status are taken into account. That is, some members of the board of directors by a general decision can be suspended until the transaction is agreed, which means they do not have the right to express their position. Thus, the transaction approval protocol of the joint-stock company works within the framework of the established rules.
Two-step solution
The decision on a major transaction can be divided into two stages.
At the first level, a vote is taken by the board of directors, which is also called the supervisory board. It sometimes includes some members of the joint-stock company, which means that they have the right to participate in decision-making. If in the end the election did not end unanimously, then the transaction is considered not accepted and the second stage begins. This is a meeting of shareholders.
Elections in the second stage take into account the majority of votes to approve a major transaction. If the number of shareholders who accept the terms of the transaction is minimal, then it is considered unprofitable.
For large transactions that exceed the cost of 50% of the cash balance of the enterprise, the second stage is immediately applied with the participation of the general meeting of shareholders. The majority of votes allows you to allow or refuse to conduct a financial transaction. Consent to the contract is valid only if three quarters of the shareholders choose this option (qualified majority).
The decision on approval of a major JSC transaction is required only if several owners manage the company. There are times when one person owns 100% of the shares. In such situations, it is not possible to hold elections or convene a board of directors, and all transactions are considered by the sole owner of the company. There is one caveat.
Permission from the sole shareholder must be obtained only to the general director, who conducts all the affairs of the company, but only partially manages financial opportunities.
The conclusion of a major transaction without an owner
In case of violation of the established rules, the conclusion of a major transaction of the joint-stock company may be annulled by the court upon filing a claim by the organization, a member of the board of directors or a shareholder.
In this case, a review of all the details of the case is carried out and only then a decision is made. If a major transaction in the Federal Law on AO was executed without the knowledge of the owner of the company, then in almost all cases of claim it is considered invalid.
There are several nuances that you must remember before filing a lawsuit. You can file an application with the court regarding the cancellation of a major transaction only within a year from the date of conclusion of the financial transaction. After this period, the court rejects the request for cancellation of a major transaction.
In addition, the court has the right to refuse the company or its member in the following circumstances:
- If the lawsuit was filed by one of the shareholders who participated in the meeting before the adoption of a major transaction for the joint-stock company. In cases where his vote did not influence the election, the court shall refuse to cancel the financial transaction. The case ends.
- A refusal follows in the case of evidence or information that refutes allegations that the transaction could lead to financial losses.
- At the time of the consideration of the case and before the court makes a decision, the shareholders have the right to provide any evidence substantiating their position.
- During the trial, the defendant shows information that indicates that a vote on the transaction was held with the participation of all shareholders and all conditions were taken into account.
If the court declares the transaction invalid, then within the prescribed time, everything must be returned to its place before its entry into force. That is, cash, buildings, goods, loans must be transferred back to the company, but the organization, in turn, must return the resources received when making a major transaction for the joint-stock company.
In cases where the products participating in the contract have been improved or, conversely, the condition has become worse during operation, additional compensation is paid that will satisfy the requirements of both parties.
Approval of a major transaction without an owner
A major transaction, which is accepted without the consent of all owners, is considered invalid. The participation of only a number of shareholders in the vote is considered one of the main violations in this financial process. As a result, the transaction can be easily challenged in court, to cancel its effect. Then - seek financial compensation from the organization or shareholders who went against the law and a specific person. Given all these features, Russia nevertheless practices activities in which large transactions are not accepted by the entire composition of shareholders. The procedure is carried out with full confidence.
That is, in the first case, a shareholder who did not participate in the vote simply does not bring charges within a year or approves the transaction after its adoption. In this way, he makes it completely transparent, valid and concluded within the framework of the law. This method is applicable in business conditions, but it is important to remember that such actions lead to great risk. A shareholder at any time after the transaction is agreed may refuse to approve it, and then the company falls into a series of litigation and problems.
Business organizations have great financial opportunities, which should be regulated at the legislative level. That is why so many conditions have been created under which a major transaction for the joint-stock company is carried out. A sample and plan is prepared in advance taking into account all the requirements. This will help to avoid financial and legislative problems in the future.
The final important point: the protocol of approval of a major transaction of JSC should always be drawn up.
Some people use business for the good: to make money legally, to provide jobs and pay taxes. Others pursue exclusively selfish goals for profit. The latter are called upon to rationalize legislative restrictive measures on major transactions of joint-stock companies.