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Registration of LLC with model charter in Ukraine

The article is based on our experience of provision service Registration of a legal entity (limited liability company, private company) in Kiev.

On the 28th of August 2011 the Law “On amendments to some regulatory acts of Ukraine related to introduction of principle of state registration of legal entities based on model charters” entered into force. The document provides opportunity for establishment and functioning of a legal entity based on a model charter that is approved by the cabinet of Ministers of Ukraine. And even though the actual model charter is not yet approved many people are uncertain whether such registration should be performed.

Registration of a legal entity based on model charter indeed has a number of advantages among which one can name absence of necessity to use assistance of lawyers related to charter document drafting. Besides model charter cannot be forged. It is not required to be submitted for registration, to notarize signatures of founder on it, etc.

But not everything is so simple. When it is decided to act under model charter instead of drafting charter founders must include all the individual information about legal entity in the decision on its foundation. Thus they should include its name, purpose and object of economic activities as well as information about conduction of activities based on model charter. As for a company it is additionally required to provide information about type of company, its founders and members, amount of charter capital, shares of members, procedure of making deposits. Not all the entrepreneurs are capable of drafting such document appropriately so it will be difficult for them to do without legal support.

Let’s suggest that services related to drafting decision about foundation of a legal entity will cost less than charter drafting. But in future this “cheapness” may have a number of unpleasant consequences for legal entities registered by such means. Problems may appear even when such legal entity tries to open an account in a bank. This is due to the fact that Subsection 3.2 of the Instruction on procedure of opening, use and closure of accounts in national or foreign currency provides that in order to open an account it is required to provide a copy of duly registered charter document that is notarized or attested by the body which performed registration. Practice of communication with employees of banks shows that they prefer to accept a notarized copy of charter. Reference to the fact that an enterprise functions based on model charter , provision of extracts from the Unified State Register and other reasoning will most likely have no results. In any case until provisions of the Instruction are amended.

Similar problems may appear when entering into agreements with counterparties. How can the latter verify that an enterprise is functioning based on a model charter? They will be unable to receive a charter document due to its absence, decision about foundation of a legal entity may be of no relevance at the moment of entry into agreement, an extract from the Unified State Register may also include no information about charter of a legal entity. As the result many potential counterparties will not take the risk to cooperate with such enterprises.

Besides functioning under model charter may result in difficulties related to settlement of corporate conflicts, issues of legal entity management, entries into agreements, etc. Lawyers of law firm “Pravova Dopomoga” have dealt with issues that were difficult to cope with due to absence of the required procedures in a charter that was “cheaply” acquired (or what is even worth – downloaded from the Internet). A legal entity that acts under a model charter may face the same amount of interior problems if not more. Settlement of these issues will cost many times more than regular charter drafting which will consider the specific features of your legal entity, requests of its founders and other individual peculiarities.

This is why foundation of a legal entity based on model charter will be beneficial only for those legal entities that due to their small size and simplicity of activities do not require the charter as it is. For those who want to provide a reliable basis for a legal entity and minimize risks of complicated corporate disputes we recommend to draft individual charter documents as was done before. 

This material was written by legal experts of law firm “Pravova Dopomoga”.

It is related to practice of Corporate law and service of Registration of a legal entity.

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