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Used real estate object for LLC's charter capital increase

In December of 2016 our law firm was contacted by a client who wanted to increase the charter capital of his limited liability company by means of contributing real property to it. The client wasn't sure if it was possible at all so he turned for a legal advice of ours.

The lawyers of our company immediately reassured the Client that that was possible. Indeed, in accordance with Art. 86 of the Commercial Code of Ukraine, a member of a business partnership may contribute to its charter capital buildings, structures, equipment and other material values, securities, rights to use land, water and other natural resources, buildings, structures, as well as other property rights. 

In addition, we have such a practice.

We asked the Client whether the charter capital of his company was fully formed, as it was possible to increase the size of the authorized capital only if it was fully formed. Having found that out, our lawyers began to prepare documents. The main issue was the appraisal of the contribution. That is, its monetary value and the equivalent of the size of the share in the charter capital of the company.

Regarding the appraisal of property that the participant is going to contribute to the charter capital of the company, it should be noted that the legislation does not regulate all of its aspects. For example, in Art. 115 of the Civil Code of Ukraine it only talks about the fact that a business partnership is the owner of property transferred to it by the participants in the company as a contribution to the charter capital. And only in the comments to this article was it said that the monetary appraisal of the contribution of a participant in a business partnership is carried out by agreement of the company members, and in cases established by law, it is subject to independent expert review.

Art. 7 of the Law of Ukraine "On valuation of property, property rights and professional valuation activities in Ukraine" contains a list of cases when appraisal of property is mandatory. In particular, this applies to enterprises where there is a share of state or municipal property. The business partnership of our Client does not either of the above. Thus, it was not necessary to turn to an expert assessment. But, in order to avoid possible claims from other members of the company in the future, we advised the Client to turn to professional appraisers anyway, which the Client agreed to do. Immediately after receiving an independent expert opinion, the members of the company signed a new revision of the company's charter, prepared by the lawyers of our company, and other necessary documents. And the very next day after signing the documents, the corresponding changes were registered by our lawyers in the Unified State Register.

The Client was pleased that everything went much faster than they had anticipated, and the viable advice of our lawyers held them harmless from possible troubles in the future.

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