The difference between limited liability companies and joint stock companies

The world today is witnessing rapid development in the fields of business and the establishment of companies, and the most prominent types of companies that are formed today are limited liability companies and joint stock companies as one of the most important types that attract investors and businessmen. Therefore, the difference between limited liability companies and joint stock companies is considered a major focus in The world of business, where limited liability companies are a more common and successful form among small and medium-sized companies, while joint stock companies are more complex and common among large and well-known companies. 

The difference between limited liability companies and joint stock companies

When starting the business of establishing companies, you have many options, including limited liability companies (LLC) and joint stock companies (Corporation), as each type has its advantages and challenges, and directly affects commercial and administrative processes, legal responsibilities, and taxes. Below we will review the difference. Between limited liability companies and joint stock companies in detail:

Establishment and legal structure

 Limited Liability Company (LLC) Establishment: An LLC is created by registering it with the relevant government agencies in accordance with local regulations. Ownership can consist of one or more members, while management can be managed by the members themselves or appoint managers.

 Incorporation of a joint-stock company requires more complex legal procedures, including issuing internal regulations and establishing a board of directors. Ownership is through shareholders, and management is managed by a board of directors appointed from among the shareholders. 

Financial responsibility

A limited liability company has limited liability to the extent of their contributions to the capital, so members are not liable for the company's debts to the extent of their personal funds.

A liability joint stock company is similar to an LLC, where the financial liability of shareholders is limited to the extent of their investments.

Taxes

An LLC is considered a tax transparent entity in many systems, as profits and income are taxed at the member level, and members can choose the C or S corporation tax method if that suits them. 

 In a joint-stock company, taxes differ according to the type of company (C or S), as a C company is subject to taxes at the company level and at the level of distributed profits, and there is (double taxation), while an S company is subject to taxes at the resource level only, which avoids double taxation. Tax. 

See also: The difference between a limited liability company and a one person company

 Distribution of profits and losses

A limited liability company is considered more flexible in distributing profits and losses, as profits can be distributed according to agreement between members, regardless of the percentage of contribution.

The joint stock company distributes profits based on the number of shares owned by each shareholder. 

Continuity and financing

The limited liability company may cease upon the withdrawal or death of a member, unless the articles of association stipulate otherwise. As for financing, it is obtained from members or bank loans. The joint-stock company has continuity independent of the lives of the shareholders, and for financing it can raise significant capital by issuing stocks and bonds.

Flexibility and regulatory environment

The limited liability company is flexible, so it is suitable for small and medium-sized companies, and has fewer regulatory requirements.

Joint Stock Company (Corporation) The regulatory environment is subject to greater regulatory restrictions, which may make it more complex but gives it the character of professionalism and confidence in the market.

Reasons for preferring joint stock companies over limited liability companies

After clarification The difference between limited liability companies and joint stock companies: You may find that business owners prefer the first type over the second, due to the following reasons:

• Joint stock companies allow the raising of large capital by issuing shares and selling them to the public or investors, and this makes it easier to finance huge projects and invest in advanced technologies.
• Joint stock companies enjoy the advantage of continuity, even in the event of the death or withdrawal of one of the shareholders. Ownership of shares is transferred easily without affecting the daily operations of the company, and this ensures the sustainability of work and the continuity of projects. 
• Professional management in joint stock companies, where a board of directors is appointed by shareholders to manage the company, and this includes hiring experts and specialists in various fields to improve the company’s performance and make strategic decisions, while in limited liability companies, management may be confined to the hands of a few owners who They may lack sufficient experience in different fields. 
• Joint stock companies have a strong reputation in the market due to the high transparency and legal oversight to which they are subject. Therefore, the public and investors are able to know the company’s financial performance through annual reports and published financial statements, and this enhances confidence and attracts more investors and business partners.
• Easy trading of shares on stock exchanges is one of the most important advantages of joint stock companies, as shareholders can buy and sell shares easily, which provides higher financial liquidity and makes investing in them more attractive.
• Tax and financing incentives in some countries, where joint stock companies receive tax incentives and greater financing facilities compared to limited liability companies, and this enables them to achieve financial savings and use these resources to achieve further growth and expansion.

What are the disadvantages of joint stock companies?

After clarifying the difference between limited liability companies and joint stock companies and the reasons for preferring joint stock companies over limited liability companies, we must clarify the most important disadvantages of joint stock companies, which are as follows: 

Read also: How to establish a one-person company

Complexity and high set-up costs

Legal complexity in the process of establishing a joint stock company, as it requires complex legal procedures, such as drafting articles of association and obtaining licenses from the competent authorities, and thus the costs are high, which include legal costs, advertising and publishing costs, and the costs of consulting with financial and legal advisors.

 Double taxation

 Taxes on the profits of joint-stock companies are calculated by taxing their business profits, in addition to there being taxes on the distribution of profits when dividends are paid to shareholders, as they pay taxes on them as well, leading to double taxation.

Loss of control and distribution of shares

The decision in joint-stock companies depends on the meeting of shareholders and boards of directors, which means that the founders may lose full control over the company. Shareholders also intervene and have expectations or requirements that differ from the vision of the founders, which leads to disputes or pressure to make certain decisions.

Transparency and disclosure

 Joint-stock companies are required to disclose any detailed financial and non-financial information to the public and regulators, which may expose them to scrutiny from third parties, such as compliance costs, and transparent disclosure can be expensive and requires the hiring of experts, lawyers and accountants. 

Internal conflicts

Conflicts arise between shareholders, especially if there are differences in opinions about the company's strategies or the distribution of profits.

Reliance on financial markets and market fluctuations

The value of joint stock companies' shares is affected by financial market fluctuations, which may negatively affect the company's value and investor confidence, and increase the rate of exposure to economic crises in cases of economic recession or financial crises, and joint stock companies may face major challenges in financing and expansion.

In conclusion, we have clarified the difference between limited liability companies and joint stock companies, and when establishing a company it depends on your own needs and goals, as limited liability companies provide greater flexibility and less complexity, while joint stock companies provide the opportunity to raise large capital and greater continuity, and remember that every system A company may differ in its details, so it is always preferable to consult a legal or financial expert from Diwan office Before making the final decision.