On 6 February, the Verkhovna Rada of Ukraine passed the Draft Law of Ukraine "On Limited Liability and Additional Liability Companies" No. 4666 (the Law). The Law is pending signing by the President and, if signed, will come into effect three months after its official publication. The Law envisages many important changes with respect to incorporation, operation and governance of limited liability and additional liability companies (the Company).

Discretionary nature

As compared to current legislation, the Law has significantly extended the list of issues that may be regulated by the Company’s charter. At the same time, the number of mandatory law provisions that cannot be changed at the parties’ discretion has been reduced to a minimum. An important role in governing the participants’ relations was attributed to corporate agreement (widely known as "shareholders’ agreement"). Under the effective laws conclusion of the corporate agreement was almost impossible, which was one of the main reasons why as a matter of practice the issues of the Companies’ governance were regulated in foreign law shareholders’ agreements concluded at the level of foreign holdings.

Cancellation of certain restrictions

The Law shall cancel some existing restrictions with regard to the Companies. First of all, once the Law becomes effective the debt-to-equity swap will become possible. Restrictions with respect to sole ownership of several Companies, as well as restriction for a Company to have as a sole participant another commercial entity with a sole participant will be also lifted.

Improvement of some existing rules applicable to the Companies

Among other important changes expected after the Law comes into effect, the following should be pointed out:

  • Introduction of the irrevocable power of attorney that may be issued by a participant of the Company
  • Improvement of rules for enforcement of a pledge over the participatory share in the share capital of the Company
  • Cancellation of a threshold for a maximum number of participants of the Company as well as removal of requirement for all participants of the Company to sign the charter, which jointly should unblock transformation of a joint-stock company into a limited liability company

It is expected that within a year after the Law comes into effect existing Companies will bring their charters into compliance therewith, whilst the state registration of relevant changes will be free of charge.

Should you have any questions, please, feel free to contact Alla Kozachenko, Legal Director, Head of Corporate and M&A, and Andrii Zhupanyn, Associate, Corporate and M&A.

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