On February 6, 2018 the Law “On Limited and Additional Liability Companies” (“Law”) was adopted by the Verkhovna Rada of Ukraine. On February 20, 2018 the Law has been forwarded to the President for signature. It will enter into force 3 months after its publication in the official parliamentary newspaper “Holos Ukrainy”.
With this legal act, Ukraine will be one step closer to harmonization of its legislation with the EU`s regulations. One of the authors of the bill, the chairman of the Committee on Economic Policy, Andriy Ivanchuk, in his interview to Interfax-Ukraine commented that the adoption of this document “will allow a breakthrough in relations with small and medium-sized businesses”. In addition, he added that Limited Liability Companies (“LLC”) and Additional Liability Companies (“ALC”) are the most common company types in the country, with more than half a million LLC and ALC in Ukraine.
Prior to this Law, LLCs and ALCs were regulated by the Law “On Business Companies”, which is quite obsolete, as well as by the Commercial and Civil Codes of Ukraine, which are often ambiguous.
We analyze below some of the major provisions of the Law:
• The Law defines the legal status of LLCs and ALCs, stipulates the procedure for their creation and liquidation, as well as the rights and obligations of their participants.
• The Law allows the conclusion of a “corporate agreement” (known in international practice as “shareholder agreement”).
• The Law allows for the company`s charter to not disclose the size of statutory capital, list of participants, as well as the location of the LLC and/or ALC.
• The Law shortens the term of formation of the company's charter capital (from 1 year in the Law “On Business Companies” to 6 months in the Law “On Companies with Limited and Additional Liability”). Moreover, the Law allows the further reduction of that term by stipulating it in the company`s statute/chapter.
• There is no limitation on the number of participants in the LLC and ALC.
• The Law introduces conditions under which dividend payments become impossible. Furthermore, it is foreseen that the list of such requirements can be extended by the company’s statute/chapter.
• The Law modifies the procedure for the exclusion of participants from the LLC and ALC.
Overall, the Law provides for separate regulations for LLCs and ACLs, which are clearer and more precise in comparison with previous legal acts. Foreign investors are advised to review the new legislation and reconsider investing in Ukraine.
As an EU-based firm, Eurofast can assist local business with preparation of shareholder agreements. Additionally, we can also support foreign investors in setting up business in Ukraine in line with the new legislation.