Deregulation of the corporate sector

CMS Cameron McKenna, 
Kyiv, Ukraine, Friday, May 30, 2014

Ukraine used to be an unattractive jurisdiction in termsof doing business due to the excessive regulation involved with setting up and runninga business. The current Ukrainian government is now committed to encouraginglocal and foreign investors by reducing unnecessary regulation, includingwithin the corporate sector.

This spring, the Ukrainian parliament adopted lawsproviding for:

(i) the simplification of running businesses andcompanies by cancelling, among other requirements, the mandatory use ofcorporate seals, and

(ii) the simplification of procedures for reorganisationand liquidation of businesses by abolishing unnecessary complicatedrequirements.

Simplification ofestablishment and running businesses

In particular, on 15 April 2014, the Ukrainian parliamentpassed the Law of Ukraine "On Amending Certain Laws of Ukraine forSimplification of Business Opening Procedures" (the “BusinessSimplification Law”).

The Business Simplification Law’s principal purpose is tosimplify the procedures for the establishment of business in Ukraine and toenable investors to set up companies in a more cost effective manner and savetime that used to be spent on the physical filing of the application documents.

Firstly, the changes abolish the fee for the initialstate registration of a legal entity. The fee will only now be required for theregistration of amendments to the legal entity’s record in the Unified StateRegistry of Legal Entities and Individual Private Entrepreneurs and for theissuance of registration certificate duplicates.

Secondly, the changes broaden the scope of informationregarding companies that the public will be able to access via the on-lineversion of the Unified State Registry of Legal Entities and IndividualEntrepreneurs. In addition to basic information regarding companies, the publicwill be granted free on-line access to information about particular company’slegal predecessors, their separate sub-divisions (units), and any enforcementprocedures commenced that relate to the company. This will add moretransparency and eliminate the risk of speculating on information about legalentities.

Thirdly, the Business Simplification Law introduces amechanism, which will allow the registering of a business through the filing ofelectronic form documents without applying a digital signature, as waspreviously required.

Finally, the most important change initiated by theBusiness Simplification Law is the cancellation of the mandatory requirementfor legal entities to apply corporate seals. Entrepreneurs and companies willnow be free to decide whether or not they need a corporate seal. This novelty isbased on successful examples from foreign countries where the procedure forsigning contracts is much simpler.

The Business Simplification Law will become effective on6 November 2014.

Simplification ofreorganisation and termination of legal entities

Furthermore, on 13 May 2014, the Ukrainian parliamentadopted the Law introducing changes to the Law of Ukraine “On StateRegistration of Legal Entities and Individual Entrepreneurs” regarding thereorganisation of state enterprises and simplification of termination of legalentities (the “Law on Business Reorganisation and Termination”).

Essentially, the Law on Business Reorganisation andTermination abolishes certain cumbersome requirements that used to complicatethe procedures of reorganisation and liquidation of legal entities. The Law onBusiness Reorganisation and Termination abolishes the requirement to registerthe amendments to the company’s record in the Unified State Registry of LegalEntities and Individual Private Entrepreneurs when the company is in theprocess of termination.

This change is particularly important for foreigninvestors in the context of ownership structure alterations. In practice,reorganisation and liquidation of Ukrainian companies can last for months andeven up to several years. During this period, circumstances may occur thatchange core information about the Ukrainian company and, ultimately, should bereflected in the Unified State Registry of Legal Entities and IndividualEntrepreneurs. Information about a change of shareholders, address, or relatedto the sub-divisions (separate legal units) of the company, which is inreorganisation or liquidation, can now be appropriately registered.

Additionally, it will also be possible for a company thatis undergoing reorganization or liquidation to act like a founder and set upnew companies. The Law on Business Reorganisation and Termination implies thatin case of reorganisation, the share in the charter capital of the new companywill be transferred to one of the legal successors, while in the case ofliquidation, such share will be included in the liquidation balance.

Adoption of these changes will significantly simplify thereorganization and liquidation procedures of legal entities and, hence, improvethe business climate.  This should helpto attract domestic and foreign investment, and improve Ukraine’s position inthe international ratings of business attractiveness.

The draft Law on Business Reorganisation and Terminationis currently being prepared for the acting President’s signature and, ifsigned, will be enacted from the date of its publication in the official legalnewspaper of Ukraine.

Laws:

The Law of Ukraine"On Amending Certain Laws of Ukraine for Simplification of BusinessOpening Procedures" N1206-VII dated 15 April 2014.

The draft Lawintroducing changes to the Law of Ukraine “On State Registration of LegalEntities and Individual Entrepreneurs (regarding the reorganisation of stateenterprises and simplification of termination of legal entities)” N 2121-1 dated11 February 2013 (adopted on 13 May 2014 and is currently being prepared forthe President’s signature).Authors:

OlexanderMartinenko, Senior Partner, olexander.martinenko@cms-cmck.com

RuslanOstapenko, Associate, ruslan.ostapenko@cms-cmck.com

AnnaSpichenko, Lawyer, anna.spichenko@cms-cmck.com