The Law of Ukraine “On introduction of amendments into certain Ukrainian acts of legislation related to protection of the investors’ interests” comes into force on May 01, 2016. In particular, the legislator substantially modifies many key provisions of the Law of Ukraine “On joint stock companies”. A number of amendments are also related to the legal status of public (PJSC) and private joint stock companies (PrJSC).
Among the major novelties of the legislation relating to activities of joint stock companies will be deletion of the existing requirement towards the quantity of shareholders of a Private Joint Stock Company which, at the moment, may not exceed 100. For many big companies, which started to have thousands of shareholders (represented by members of their labor collectives) in the course of privatization, the mentioned legislative provision had been the main obstacle on the way of changing the organizational structure by PrJSCs. This barrier is being lifted now and a whole number of companies has introduced the matter of changing the type of their organizational structure from PrJSC to PJSC to agendas of their annual meetings.
It is expected that by the end of this year example of the said companies may be followed by other companies not willing to follow strict requirements raised by the law towards public joint stock companies, including the listing requirements.
If, as of today, any public joint stock company is required to perform the procedure of including its shares to the list of, at least, one stock exchange (i.e. shares of a PJSC may be related both to the category of the listed securities and the category of non-listed securities), from May 05, 2016 all the PJSCs will be obliged to go through the procedure of including their shares into the stock exchange register and stay in it at least at one Ukrainian stock exchange (i.e. shares of PJSC must be attributed to the category of listed securities at least at one stock exchange). With consideration for the recent amendments introduced in relation to the listed securities and their issuers (for example, for first level listed shares minimum part of shares in the free circulation must constitute not less than 25%, and for the second level listed shares – 10%; at the same time both investors must not hold more than 50% of such part). It is understood that in the country with a highly monopolized market with free float of shares constituting 5% (at best) it would be much easier to change the organization type of the company, than to try to follow all the listing requirements. So much the more that many Ukrainian PJSCs actually rank below the level of European standards of public companies, in particular as regards to transparency of company ownership, quality of assets, level of corporate management and protection of investors’ interests.
The new law has also improved the problematic situation related to appraisal of the shares of PJSs. The legislation stipulates for instances when it is required to carry out appraisal of the market value of shares (for example, in case of compulsory buyback of shares from the shareholders). For the PJSCs such appraisal is carried out through application of stock exchange mechanisms used for defining the stock value of shares. In practice shares of many PJSCs are only formally included into the stock list at the stock exchanges and there are no actual operations with securities at the stock exchange market thus making it impossible to define their stock value. The new law stipulates that the market value of shares of PJSC (being in circulation at the stock exchanges) shall be defined as average stock exchange rate of such securities calculated by the stock exchange on the basis of three recent months of their circulation. If it is impossible to define the market value of such securities of PJSCs based on the recent three-month period of their circulation such value shall be defined upon engagement of an independent appraiser (i.e. as in the case with the PrJSC).
The legislator has also introduced amendments to the procedure of formation of the supervisory board. In the case of PrJSCs now the members of the supervisory board shall be elected as a result of accumulation voting (unless the PrJSC’s charter establishes another election method) not less than once in three years (in case of PJSC – annually). In addition starting from May 01, 2016 the supervisory board of PJSC shall include not less than two independent directors appointed according to the criteria stipulated by the law. The practice of appointment of the directors into the supervisory board complies with the European standards of corporate management, contributes to objectiveness and transparency in the process of upholding the decisions by this managerial body, as well as protects the interests of minority shareholders. Private Joint Stock Companies shall establish the following committees: audit committee, committee on defining the amount of remuneration paid to the company officials, as well as the appointment committee. The mentioned committees shall exclusively or mainly consist of the members of the supervisory board (having the status of independent directors) and headed by them. Again it must be mentioned that this is the practice of corporate management widely spread in the Western countries which allows engaging external experts to participation in upholding decisions related to the most vulnerable (in terms of possible unlawful actions and corruption) matters.
These and other novelties are indicative of growing differences between PJSC and PrJSC, of increasing the requirements towards the companies operating under PJSC form of incorporation, and of the general focus of the legislator and regulator on the decrease of the quantity of PJSCs by virtue of raising the quality of their corporate management.