Enhancement of corporate regulation in Ukraine
Dentons, Kyiv, Ukraine,
Thu, March 15, 2018
On February 6, 2018, the Verkhovna Rada of Ukraine adopted the Law On Limited Liability Companies and Superadded Liability Companies (hereinafter referred to as the Law on LLC), whereby material amendments were introduced into the legal regulations governing the establishment and operations of limited liability companies and superadded liability companies. The Law on LLC was signed by the President of Ukraine on March 12, 2018, and its publication is expected in the nearest future.
Generally speaking, the Law on LLC shall enter into full force and effect within three months from the date of its publication.
As a result of the entry into full force and effect of the Law on LLC, the out-of-date Law of Ukraine On Business Entities is to be acknowledged as invalid so far as is applicable to the limited liability companies and superadded liability companies; amendments are to be introduced into the Economic Code of Ukraine and Civil Code of Ukraine for the purpose of bringing the aforesaid regulations into compliance with the Law.
The most important novels resulting from the Law on LLC shall include the following:
- Possibility to conclude a corporate agreement among participants of the company; such agreement is null and void if the conditions regarding its free-of-charge nature and preparation in the form of a written instrument are not met; in addition to the above, any contracts executed by the party to a corporate agreement in violation of such corporate agreement shall be null and void
- Abolishment of the provisions regarding maximum permitted number of the LLC’s participants
- Introduction of legal mechanism for non-revocable power of attorney, covering corporate rights, for the purpose of ensuring performance of the obligations assumed by the participants as parties to the corporate agreement, which obligations are pertaining to the rights to an interest in the charter capital or powers vested with the participants
- Introduction of a clear mechanism for enforcement of the company’s participant’s interest
- Introduction of restrictions applicable with respect to the payment of dividends
- Introduction of such notions as “material transaction” and “transaction of interest” and establishment of procedure for approval of the same
- Abolishment of restrictions regarding participation of sole participant in the LLC. Until now, the LLCs have not been allowed to have as its sole participant another business entity with a sole participant, and a person has been allowed to act as a participant of only one LLC with a sole participant; now, these restrictions have been abolished
- Abolishment of the restriction regarding possibility to make a contribution into the company’s charter capital via offsetting claims against the company. Thus, it is now possible to convert debts into equity.
It has been a long time coming, but on February 15, 2018, the President of Ukraine signed the Law of Ukraine On Introduction of Amendments into Certain Legislative Acts of Ukraine Regarding Corporate Agreements (hereinafter referred to as the Law on Corporate Agreements), which had been adopted by the Verkhovna Rada of Ukraine on March 23, 2017 and whose provisions were closely related to those of the Law on LLC in terms of introduction and detailed regulation of the mechanism for conclusion and application of corporate agreements as an efficient tool for protection of the investors’ rights and interests.
The Law on Corporate Agreements is aimed at application of the up-to-date methods of corporate governance in joint stock companies and limited liability companies and provides for the introduction of agreements regarding implementation of rights vested with participants (founders) of a limited liability company as well as agreements between shareholders.
Pursuant to such Law, amendments are also introduced into the Civil Code of Ukraine, resulting in the enhancement of mechanisms for management and adoption of resolutions due to execution by the participants (shareholders) of agreements for implementation of the rights vested with participants (founders) of the LLC/corporate agreements.
The Law on Corporate Agreements was published on February 17, 2018 and entered into full force and effect as of the day subsequent to the day of its publication (February 18, 2018).