What is an OJSC: main advantages and disadvantages

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The needs of the modern world economy have created conditions for the development of enterprises of such an organizational form as an open joint-stock company (OJSC). It gives its members great opportunities and many privileges.

What is OJSC

An open joint stock company is an organization that consists of individuals and legal entities en titled to conduct joint business activities. The authorized capital of such a company is divided into shares owned by its members. An important feature and distinguishing feature of an OJSC is that shareholders are liable for obligations strictly within the value of the shares they own. And the joint-stock company itself is not liable for the property obligations of its participants.

According to the law, OJSC is considered a legal entity, has the right to a name with a mandatory indication of the form of organization. The company must have its own charter, which is drawn up and approved by its members. This document defines the rights and obligations of shareholders and contains the main points governing the activities of the OJSC. The branch is a structural unit of the company and is obligedact according to the charter.

What is the difference between OJSC and CJSC

Many people confuse these two organizational forms. To understand the differences, it is necessary to define what an OJSC and a CJSC are.

Both organizational forms are commercial organizations, the authorized capital of which consists of shares. A characteristic feature of a closed joint-stock company (CJSC) is the restriction of the right to own shares. That is, only persons who created such an organization can own the securities of an enterprise. No one else has the right to acquire shares and dispose of them. And if one of the CJSC members decided to leave the organization and sell their own securities, then such a transaction can be made only with other shareholders of the company.

OJSC founders can be persons in a limited number, and almost any person or legal entity has the right to acquire shares. Each owner of the securities of an open type company may assign its own shares in favor of third parties without the consent of other shareholders. The OJSC is also required to publicly release its financial statements from time to time.

To answer the question of what an OJSC is, one should understand all the features of this organizational form.

Benefits of JSC

Open Joint Stock Company has great opportunities compared to other organizational forms. The fact is that the property of an OJSC is formed from income from the sale of shares and profits from the activities of the enterprise. In this way,The organization's capital is accumulated by issuing securities and selling them to everyone. The company receives the funds received for long-term use and has the right to use for a variety of purposes: paying loans, investing in new production, scientific research. This is very advantageous because you don't have to pay interest at fixed times, as in the case of using borrowed bank funds.

An important advantage of this form of organization is the possibility of attracting additional sources of financing by issuing bonds. Thus, an open joint-stock company can raise funds for 10 or more years, paying interest on bonds from the gross profit of the organization. For comparison, a joint-stock company is obliged to pay dividends on shares from net profit. For this reason, bonds are considered a more profitable financial instrument.

A significant advantage of the JSC is the ability to motivate staff with the help of the same securities. So, the management of the enterprise can offer managers to buy a block of shares in the future at relatively low prices. This tool allows you to create motivation for the effective operation of the enterprise, as managers will try to work more productively. After all, the higher the market value of the shares of the OJSC, the more the staff will be able to earn. This feature is the key argument explaining what an OJSC is.

There are other virtues as well. For example, the word "open" refers to the public status of an organization. Due to this, the OJSC has the opportunity to expand its fame, developauthority and prestige in the market. In addition, the securities of an enterprise of this form of organization are sold on financial exchanges, which makes it possible to quote shares and bonds of the company on a daily basis. And this means that each shareholder can sell their shares at any time. Financial markets are the best illustration of what an open joint stock company is.

Negative aspects of OAO

The organizational form of JSC has some shortcomings, which appear during the activity. The biggest problem is double taxation. The fact is that the company must pay income tax, and then transfer a percentage of dividends to the state budget. If the tax rates are high, then the existence of society is quite expensive.

The lack of flexibility and efficiency in decision-making by the management of the enterprise, and even the possibility of transferring control over the company into the hands of competitors is also considered a negative point of the OJSC.