A Brief Legal Description of the Most Common Commercial Companies in Ukraine
By Andrey Smityukh
ANK
Issues of company law in
Ukraine are regulated, first
and foremost, by the On Commercial
Companies Act of Ukraine of
19 September 1991, No.1576-XII;
Civil Code of Ukraine of 16 January
2003, No.435-IV; Commercial
Code of Ukraine of 16 January 2003, No.436-IV.
The On Commercial Companies Act of Ukraine of 19 September
1991, No.1576-XII is one of the oldest Ukrainian laws: it is
an example of the first experience of drafting a company law in
Ukraine.
The Civil Code of Ukraine of 16 January 2003, No.435-
IV was drawn up in manner typical of modern civil codes in
continental Europe, whereas the Commercial Code of Ukraine
of 16 January 2003, No.436-IV embodies a special concept
of Commercial law and sums up post-soviet legal rules. The
Codes were drafted by two different working groups independently;
the authors of each Code worked separately and were
sure that the Verkhovna Rada (Ukrainian Parliament) would
adopt only the Code they were preparing. The On Commercial
Companies Act of Ukraine of 19 September 1991, No.1576-XII
should be applied additionally because many of its provisions
support the provisions of the new Codes.
Nevertheless, some provisions and concepts have still not
been coordinated.
There are some drafts of the On Joint Stock Companies Act
of Ukraine in the Ukrainian Parliament under consideration at
different stages of the legislative procedure waiting to be passed.
The most anticipated event in company law in Ukraine now is
adoption of one of the aforesaid drafts.
The following types of commercial companies exist in
Ukraine:
1. Joint Stock Companies (JSC): the authorized capital is divided
into a certain number of stocks (shares) of equal nominal
value; corporate control by shareholders depends on the number
of shares owned; the shareholders are risking only their shares;
2. Limited Liability Companies (LLC): the authorized capital
is divided into shares (it’s impossible to issue such securities
as stock in a LLC); corporate control by shareholders depends
on the number of shares owned; the shareholders are risking
only their shares;
3. Additional Liability Companies (ALC) are constructed
like an LLC: the only distinction is that shareholders are risking
not only their shares but their own assets too in according with
the proportion provided by the Charter of the ALC;
4. Full Liability Companies (FLC) are similar to General
Partnerships: the partners provide a Company’s activity and adopt
all decisions together; they are risking all their own property);
5. Mixed Liability Companies (MLC) are similar to Limited
Partnerships: there are not only full liability partners but
also limited liability shareholders risking only their own shares.
Limited liability shareholders are not involved in the decisionmaking
process.
It is impossible to create a commercial company not provided
for by legislation in Ukraine (e.g. Mixed Liability Joint
Stock Company). ALC, FLC and MLC are very rare types
of commercial companies in Ukraine. The majority of major
companies are established as JSC, whereas small and mediumsized
ones are usually created as LLC.
An LLC as well as a JSC can be established by a sole shareholder
but there is a rule that a person cannot be the sole shareholder
in two companies simulataneously. In addition, the
LLC and JSC established by a sole shareholder cannot be the
sole shareholder of the other company. Shares in an LLC (JSC
stocks) can be bought by the LLC (JSC) itself in order to re-sell
stocks/shares (or to nullify stocks) within the space of one year.
The authorized capital of the LLC should be not less than
100 legal minimum salaries (100*UAH 460 = UAH 46,000),
which is approximately USD 9,200.
The Charter of the LLC provides information on the types
of Company, its name and location; the amount of the authorized
capital; the procedure for allocation of profits and losses;
the structure and scope of remit of the company’s bodies and
the procedure used in their making decisions; the procedure for
introducing amendments to the Charter and the procedure for
liquidation and reorganization of company; the object and subject
matter of its activity; the current shareholders, their shares,
contributions to the authorized capital.
The LLC Charter and amendments are to be signed by all
the shareholders.
Also, there should be no more than 10 shareholders in the
LLC. If this limit is exceeded the LLC should be restructured
into a JSC.
A shareholder can sell or alienate (transfer) his share in other
way. The Company’s Charter may provide the preemptive right
of other shareholders to buy the share put on sale.
The shareholder may also walk out of an LLC by providing
a period of notice of three months. In such case the Company
pays the shareholder compensation to the value of the stake
within one year after he/has left.
The shareholder may be expelled from an LLC by compensation
of the value of the stake in accordance with a decision
adopted by shareholders who own more than a 50% shareholding.
This is possible in the event of systematic non-performance
or undue performance of a shareholder’s obligations or if the
shareholder creates difficulties for the attainment of the company’s
goals.
The following are bodies of an LLC:
- General Shareholders Meeting (GSM) is the supreme
body with exclusive power to make decisions regarding: guidelines
for a company’s activities; changes to the Company’s
Charter and authorized capital; election and removal of members
of the executive body and the auditing commission or
other controlling body; approval of the annual results of the
company’s activity; creation of daughter companies and other
subsidiaries; distribution of profits and losses; acquisition by
the Company of its own shares; expulsion of the shareholder;
liquidation of the Company;
- The Executive Body (it may be the collective board or individual
director) with power to make any decisions not provided
by legislation or the Company’s Charter as the powers of
a GSM;
- The Auditing Commission (AC) or other body controlling
the Board or Director may also be created as an option. External
auditors can also be called in.
A JSC can be created only as an open type (its stocks can be
sold freely without any limitations) or closed (its stockholders
have the preemptive right to buy stocks put for sale). This distinction
is strict enough: there is a need to change the Charter in
order to change an open JSC into a closed one. The type of JSC
(open or closed) is to be indicated at its nomination.
The total nominal value of the stocks issued by the JSC constitutes
its authorized capital and should be not less than 1,250
legal minimum salaries (1250* UAH 460 = UAH 575,000),
which is around USD 115,000.
Information on current shareholders can be found in the
shareholders register.
Information on major shareholders who own more than
10% of shares is public data. It can be found freely on the government’s
database at www.stockmarket.gov.ua. Information
regarding small shareholders is confidential. A shareholder in a
JSC cannot be expelled.
- A GSM is like an LLC GSM but it has additional exclusive
powers to make decisions regarding: election and removal
of members of the Supervisory Board (SB), acquisition of JSC
stocks and changes to the shareholders register. The GSM procedure
is complicated enough in a JSC: two public announcements
have to be made and each shareholder has to be informed
personally not later than 45 days before the date of the GSM;
official registration of shareholders has to take place prior to the
start of the GSM.
- The Executive Body is the same as the LLC Board or Director;
- A SB is necessary for a JSC with more than 50 shareholders
and optional for all other JSC. The powers of the SB can be
found stipulated in the Company’s Charter. Generally it should
control the Board or Director’s activity and represent shareholders
interests whilst there is no GSM called.
- An AC or other body controlling the Board or Director can
be created as an option. Outside auditors can also be called.
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