Investors may join the business not only by entering the existing company but also by establishing the new one together with the founders. In this case, the parties' first important decision is selecting the organizational form under which they will operate. Although in Belarus, the most popular business entity type for this purpose is a limited liability company (LLC), parties may choose to set up a joint-stock company.

While investments in open joint-stock companies are rare in a Belarusian IT market, closed joint-stock companies (CJSCs) are chosen more often. The Belarusian legislation on CJSCs is governed in detail and comprises specific regulations that do not always allow for flexible and short-term investment transactions. In this article, Valentina Belevich, Leading Associate at REVERA law group, and Anna Solovei, Head of M&A and Corporate Structuring Technology Companies Practice at REVERA law group, point out the major aspects of CJSCs from a Belarusian legal perspective and outlines the key legal considerations to take into account when investing in Belarusian CJSCs.

The advantages of investing in CJSCs

The principal advantage of running a business through the CJSC lies in its decision-making process. Under the legislation, many decisions in LLCs are made either by the unanimity of all shareholders or by the unanimity of the general meeting, which allows the minority shareholders to block the majority shareholder's control over the company. On the contrary, holding 75% or more of the shares in the CJSC, the shareholder is entitled to make sole decisions on the majority of issues of the company's activities that fall within the competence of the general meeting.

Moreover, the list of issues requiring the unanimity of all the CJSC's shareholders is considerably shorter compared to LLCs and comprises:

  • increasing the authorized share capital of the CJSC by increasing the nominal value of shares at the expense of shareholders;
  • amending the agenda of the general meeting unless otherwise provided by the articles of the association;
  • implementation of the remote general meetings (via Zoom, Teams, Meet).

The parties may agree that other issues will require the unanimity of shareholders (i.e., the entry of third parties into the CJSC, an additional issue of shares, the alienation of valuable assets, etc.). This is implemented through amendments to the articles of association, which shareholders must approve.

Transfer of shares

After becoming a shareholder of the CJSC, the issue of further disposal of shares usually arises. The Belarusian legislation imposes certain restrictions on the transferability of shares compared to the rules applicable to LLCs.

Exclusion of the right of first refusal

While with regard to LLCs, the right of the shareholders to purchase shares sold by other shareholders is a statutory provision, the transfer of shares of the Belarusian CJSC is possible without consideration of the right of first refusal. Unlike the LLCs, this right is not mandatory and may be excluded from the CJSC's articles of association. This provision serves the interests of a shareholder wishing to sell his shares, simplifying and quickening the transaction with a prospective purchaser, as the remaining shareholders do not have priority over other purchasers.

Prohibition on the sale of shares

The exclusion of the right of first refusal does not automatically allow for the free transferability of shares in CJSCs. The legislation on the securities market establishes a 6-month prohibition on the transfer of shares owned by persons having access to confidential information on the securities market. Such persons include:

  • director;
  • members of the Board of Directors;
  • affiliated persons of the CJSC;
  • members of the inspector commission (inspector);
  • auditor;
  • other persons having access to confidential information due to their official position or contractual duties.

The purpose of such a prohibition is to avoid speculation on the securities market since the mentioned persons have access to confidential information about the results of the financial and economic activities of the company before its public disclosure.

Succession of shares of a deceased shareholder

Unlike LLCs, there are no statutory provisions regulating consent for the transfer of shares to the heirs and successors of a deceased shareholder of the CJSC, and the articles of association cannot require such consent. As a result, heirs and successors automatically become shareholders of the CJSC. Such automatic succession may not always satisfy the remaining shareholders of the CJSC: not all heirs can meet the criteria of reliable partners or managers.

No right to exit

In CJSCs, unlike LLCs, a shareholder's exit is impossible. Instead, a shareholder may sell or otherwise alienate the shares belonging to him.

The additional issue of share

A common situation in M&A transactions is when an investor wants to issue the entire agreed pool of shares but at the same time offers to pay for shares on installment terms, for example, 50% of the subscription price - now, the rest - in a year. This cannot be implemented in the Belarusian CJSC.

The legislation on the additional issue of shares contains a peremptory rule stating that shares can be issued only if fully paid. Such a restriction rules out the possibility for the investor to receive the agreed number of shares in total but pay for them on installment terms. The additional issue of shares happens on a step-by-step basis only. If the subscription price is split and paid in installed payments, the number of shares is divided accordingly and issued after the payment of the respective tranche.

The shareholders' agreement may provide for the obligation of the shareholders to vote for increasing the share capital no later than the agreed term. In this case, the additional issue of shares for the investor may be secured.

Transaction completion

The execution of a share subscription agreement is not an ending point in the transaction (as it does not automatically give rise to the legal ownership of shares) and shall be followed by mandatory actions:

  • approval of the results of a closed share subscription at the general meeting,
  • registration of the amendments to the articles of association, and
  • registration of an additional issue of shares with the Securities Authority.

In total, it may take approximately a month for the new shareholder to receive his shares in the depot account and become a rightful and legitimate owner of shares. In this regard, two issues should be considered.

Registration with the depositary

A share is a security confirming the shareholder's contribution to the company's authorized capital. The rights to securities are accounted in records maintained by special depositories.

Transactions with shares made on an unorganized market (over-the-counter market) are subject to mandatory registration by a broker or a depository. Consequently, any agreement on the transfer of shares in CJSCs enters into force at the moment of its registration by the depositary.

Moment of transferring the ownership rights to the shares

In the case of LLCs, parties may independently determine the moment of transfer of ownership to the shares (i.e., the date of executing the share purchase agreement, the date of payment, and the date of receipt of funds to the seller's account). However, it does not apply to shares in CJSCs. Under the legislation, the person acquires rights and obligations as a shareholder of the CJSC on the date of the transfer of shares to his depot account.

Moreover, under the legislation, future shareholders are not entitled to act as a party to a shareholders' agreement. In this regard, the parties can execute this document only after investors have become shareholders.

Conclusion

The outlined regulations may be a little unexpected for those working with Belarusian CJSCs for the first time. When implementing transactions involving CJSCs, it is essential to take into account the above-mentioned legal considerations. This will help ascertain whether the parties' arrangements and intentions fall under the legal framework created for CJSCs and prepare to encounter procedural aspects that do not always allow for flexibility and closing the transaction in a short time.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.