Distinctive features of the new law on limited liability and additional liability companies in Ukraine

In February 2018, Law No. 2275 “On Limited Liability and Additional Liability Companies” (hereinafter – the “Law”) was adopted. It enters into force on June 17, 2018.

Previously, the functioning of the Additional Liability Companies (hereinafter –the “ALC”) and Limited Liability Companies (hereinafter – the “LLC”) was regulated by the Law of Ukraine “On Business Associations”, dated September 19, 1991.

The Law is quite progressive. It substantially changes the mechanism of functioning of the LLC and ALC and makes them work modern reality. Let us highlight its main points in short. 

About contracts

Shareholders’ agreements are created for the regulation of relationships between the members of the LLC or ALC it the process of their activities.

 In order to exercise the rights and protect interests of parties to the corporate agreement, the legislator created the possibility of issuing a notarized irrevocable power of attorney, which can be canceled only with the consent of its representative.

Among the minuses it should be noted, that in case of violation of terms of the contract by one of the parties, the only way to find justice will be court. 

The contract of company establishment must ensure in practice all previous agreements of the participants, at the time of the company’s creation.   

Thus, situations of misunderstanding between founders which could arise in the course of legal entity’s activity are prevented.

Changes in the voting system

According to the law, there is the right of executive body of the ALC or the LLC to convene a general meeting of members at the request of the supervisory board of the company or a member / members of the company, that on the day of the request together have ten or more percent of the charter capital.

The law introduces a right to make a decision of the general meeting of participants according to the results of the poll.

At the same time it is impossible to make changes to the charter of a company or to decide the question on merging with another company through a poll (a list of decisions, which are not subject to voting by polling are regulated by Article 37 of the Law).

Voting is divided into three categories, depending on their nature and content.

  1. Those that are adopted unanimously (for example, the decision to acquire a share of its member);
  2. Adopted by ¾ of the members of the company (for example, making changes to the charter);
  3. Decisions adopted by majority vote.

Supervisory Board

The responsibilities of this body include issues of control over the executive body of the company. The board can elect a sole or collegial executive body; it controls its activities by termination/stopping membership in it. It can also decide on the matter of payment of remuneration to the members of the executive body.

The mandatory list of information, that is stipulated in the charter is reduced

Only the following items are required:  

  1. Name of the company.
  2. Bodies of management of the company and their competence;
  3. Procedure of joining and leaving the company by members.

Other novelties of the law in short

An important innovation is a reduction of the term for payment of authorized (charter) capital by a member from 1 year to 6 months.

The law provides for cancelation of the limit of members of the LLC or the ALC. It establishes a clear procedure for paying dividends and discretion (freedom in exercising the right) in purchasing a share of another member.

The law changes the procedure of a member leaving the company. After the law enters into force, the member will be able to leave the company without the consent of the other members, if he owns less than half of the company’s capital. After leaving the company, the member receives the value of his or her share in proportion to the total market value of the company. Thus, the new law significantly simplifies functioning of the LLC and the ALC.

In particular, it clearly establishes and regulates the activity of supervisory board of the company and simplifies the process for members who want to leave the company. An important step has been made towards the charters being freeform: reducing the number of mandatory list of information in them and providing the opportunity to formulate the provisions of the charter as founders want. The term for making a contribution into the authorized capital is reduced for members of a company and voting system changes substantially. As for the shareholders’ agreements – their effectiveness can be tested only after some time. In general, the new law is a positive impetus for the LLC and the ALC to the current market realities. 

Publication date: 22/05/2018

About author

Name: Marina Losenko

Position: Associate

Education: National Aviation University

Knowledge of languages: Russian, Ukrainian

Email: [email protected]

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