4.1 Entrepreneurship and Property
4.1.3 From the Creation of Joint Stock
Companies right up to
the Alienation of Property Rights
Recommendations
on the preparation of founding documents
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The privatisation plan formalises the joint
decision of the
work collective, regional property committee and property
fund
and their mutual rights and obligations.
The work collective of an enterprise reserves
the right to
choose one of the three scenarios for its receipt of privileges
(in essence, the method of privatisation) at any time during
the 12 months after registration of the joint stock company,
on
the ter ms stipulated by the legislation for 1992.
The property committee and fund assume obligations
(via the
approval of the corresponding privatisation plan) to commence
the open sale of the shares transferred to them, including
in
exchange for privatisation vouchers, no earlier than 12
months
after re gistration.
It is recommended that:
a) the work collective only make its privatisation
choice, when
it is transparently obvious who will hold the controlling
interest and who will be the specific investors (the work
collective itself, the investment fund, other major commercial
structures, etc.);
b) the property committee and fund -- if
the work collective
chooses one of the privatisation scenarios without determining
the potential investor -- should not sell its package of
shares
in small lots (up to 5-10%) until the controlling block
has
been so ld to a potential investor.
The statutory capital of the new joint stock
companies should
not be distributed among the owners at the first stage.
Instead, common (joint) statutory capital is created, without
any allocation of shares among owners. Councils of Directors
(supervisory councils), entrusted with control of the most
important management decisions, are created to handle the
common (joint) capital of the joint stock company. At the
second stage, the common (joint) statutory capital is
distributed among the owners in accordan ce with the
legislation on privatization.
One-hundred percent of the shares of the
joint stock company
created are declared to be the jointly controlled common
property of the state (in the person of the property committee
and fund) and the members of the work collective. The functions
of the sha reholders' meeting will be entrusted to the Council
of Directors (supervisory council) of the joint stock company,
up until the actual privatisation. Composition of the Council
of Directors (supervisory council): an odd number of members
(usually from 11 to 21), including the General Director
(Chairman of the Board); half of the directors are appointed
by
a joint decision of the regional (municipal) ad ministration
and the council of people's deputies (representatives of
the
property committee and/or fund, the relevant bank, major
suppliers and clients, and deputies); and half of the directors
are elected at a meeting (conference) of the work collective.
The Council of Directors (supervisory council)
does not have
executive or administrative functions. The Chairman of the
Board (General Director) and his or her deputies (within
the
limits of their authority) take all decisions on behalf
of the
joint stock company. The Chairman of the Board (General
Director) must obtain the consent of the
Council of Directors
for the adoption of decisions beyond the framework of the
enterprise's usual economic activity (e.g., to obtain very
large credits, sell fixed asse ts, dismiss a large number
of
employees, set up or liquidate subsidiaries, etc.). The
list of
decisions which require the consent of the Council of Directors
(supervisory council) is fixed in the Charter of the joint
stock company.
A working commission on privatisation continues
its activity
after the registration of the joint stock company, with
the
following goals:
- to provide an accurate appraisal of the
value of the
enterprise, with the assistance of auditing firms and
specialists;
- to draft recommendations on reorganisation
(of the staff
structure, numbers of employees, and management); and
- to seek a purchaser of the controlling
block of shares (institutional investor).
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Shares are issued to the entire amount of
statutory capital
according to its book cost as of July 1, 1992. At the time
of
the joint stock company's registration, all shares are declared
to be convertible, i.e., they may be transformed into any
of
the classes (ordinary, preferential type A, or preferential
type B) stipulated by legislation. Conversion (i.e., d ivision
of an entire package of shares into these classes) takes
place
after the work collective chooses one of the scenarios for
the
provision of privileges. The report on the meeting's decision
and information on the allocation of the whole package of
s
hares (given in accordance with the standard privatisation
plan) is sent to the regional financial administration and
is
one of the constituent documents of the joint stock company.
Dividends on convertible shares are declared by the Council
of
Directors of the joint stock company, and are directed into
thecompany's reserve funds up until
the actual privatisation
(allocation of the shares according to classes). The number
of
shares should be sufficient to provide at least one for
each
member of the work collective, if the first scenario for
provision of privileges is chosen. In this case, we recommend
that enterprises with comparatively high staffing levels
and
other individuals, entitled to to obtain shares preferentially
or free of charge should set a low nominal value per share.
Example: Lets consider a statutory capital of 108 million
roubles and 1,000 employees. The value of preferential shares
transferred for sale to the work collective amounts to 4
million roubles (5,400 times 1,000), or 5% of the statutory
capital. The total number of shares issued should amount
to at
least 20,000 (1,000 divided by 0.05). In this case, the
nominal
value of one share is 5,400 roubles, which is extremely
inconvenient, especially if one uses coefficients of "personal
participation" for purposes of allocation of the entire
preferential package of shares between individual employees.
Therefore, in the given case it is advisable to set the
nominal
value of a share at 100 (or 200) rubles, and emit 1.8 million
(or 540,000) shares in total.
The share in the statutory capital which
is subject to
preferential allocation (up to 10% using the first scenario,
and up to 51% for the second) or allocation free of charge
(up
to 25%) is stipulated in the joint stock company's founding
documents. If th e statutory capital or minimum wage is
changed, the terms for providing free or preferential shares
to
the work collective may not be made less advantageous. Example:
1) Lets take a statutory capital of 100
million roubles and
1,000 employees. The share are stipulated in the statutory
capital: 18% of the shares (18 million roubles, i.e., 20
times
the minimum wage of 900 roubles, times 1,000 employees)
are
free of charge; up to 10% (up to 10 million roubles) are
at a
30% discount; and up to 51% (up to 51 million roubles),
with a
coefficient of 1.7;
2) Once the actual privatisation scenario
has been chosen and the shares have been distributed, the
statutory capital is doubled (becomes 200 million roubles)
and
the minimum wage is tripled (to 2,700 roubles). In this
case,18% of the shares (36 million
roubles' worth, although 20 times
the minimum wage of 2,700 roubles times 1,000 employees
would
come to 54 millio n roubles, which is more than 25% of the
statutory capital) are transferred free of charge; and 10%
of
the shares are sold for 7 million roubles (considering the
discount, although their value is 20 million). The similar
procedure for the second scenario is that 51% of the shares
are
sold for 86.7 million roubles (considering the coefficient;
the
real value is 102 million). Within 15 days of the registration
of the joint stock company, a decision on the criteria for
allocation of preferential shares between the members of
the
work collective (by seniority, salary, etc.) for all three
scenarios must be taken at a meeting of the work collective.
A
procedure is established to allocate shares to employees
included on the list of individuals entitled to preferential
shares and dismissed from the enterprise, before the decision
is taken on the allocation of shares. (We also recom mend
that
a provision is made for the issue of payment to such
individuals of a share of the dividends accumulated from
the
reserve funds). Payment instalments for the purchase of
preferential shares (up to 1-3 years), stipulated by the
legislation, are calculated from the time of registration
of
the joint stock company.
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