Practice Areas Review: Corporate Law

Business Registration Innovations

Ernest GRAMATSKIY

Ernest GRAMATSKIY

President, Gramatskiy & Partners Attorneys at Law

PROfile

Gramatskiy & Partners

Address:
16 Mikhaylivska Street,
Office 7, Kiev, 01001
Tel./Fax:
+380 44 5811551

Gramatskiy & Partners is known as a trustworthy law firm, which has been successful in provision of legal assistance to its clients in various areas of law since its foundation. Gramatskiy & Partners is recognized as one of the leading law firms in Ukraine introducing high standards of legal services and performing exceptional proficiency.

From the moment of its foundation in 1998, Gramatskiy & Partners has acknowledged business legal practice as its own professional vocation and a mission of its serving to the public. The unique experience of a vast legal practice allows the firm to advise today more than a hundred of Ukrainian and foreign companies providing complex aid and assistance in legal matters, combining classic legal practice traditions with modern international standards of the legal services market.

Being a universal law firm, Gramatskiy & Partners has made its name in a capacity of a qualified provider of a comprehensive legal service. Combination of scrupulous approach and customer-centered orientation in terms of rendering legal assistance enables the firm to individualize a wide range of its services for business of every certain client.

For more than 17 years Gramatskiy & Partners has been successfully developing its practice in the field of business (commercial) law, foreign economic activity, and the practice of international private law.

The pride of the firm is its staff — a team of professionals who had stood at the outset of the firm and have worked their way up from its foundation on the local and foreign legal service market and who continue working for the benefit of the firm and its respected clients.

The firm’s experts provide tailor-made advice on many different practice areas, including commercial, corporate, tax, foreign economic activity and foreign investments, copyright, mass media, labor, securities and stock market, disputes resolution, mediation, insolvency. Furthermore, many of the firm’s clients have been successfully represented before public authorities and courts in civil, commercial, administrative and criminal cases.

Pragmatism and practical orientation are among distinctive features evinced by Gramatskiy & Partners in all the projects it was involved in; the firm bears responsibility for every memorandum and for every legal opinion, presented to the client. Gramatskiy & Partners structures and describes every legal procedure, as if the firm itself were to implement it in practice.

In addition Gramatskiy & Partners pays special attention to the issues of confidentiality of the projects in which it assists because the law firm realizes the importance of information secrecy for the clients.

 

It is known that the main condition of business activity in Ukraine is its legitimacy. In its turn, one of the main procedures which confirm the legality of existence of subjects of business is business registration. It is a responsible process which demands necessary knowledge of legislation regarding the formation of new subjects of business.

It should be noted that regulations regarding the formation of an enterprise are quite often amended. Therefore, registration of subjects of business in Ukraine demands professional approach, especially recently, due to the updating of legislation in this sphere. As of 13 December 2015 the Act of Ukraine On Amendment to the Act of Ukraine on State Registration of Legal Entities and Individual Entrepreneurs and of some other Legislative Acts of Ukraine regarding Decentralization of Authorities of State Registration of Legal Entities and Individual Entrepreneurs and Public Organizations as of 26 November 2015 No. 835-VIII except for a number of provisions (hereinafter — the Act).

The purpose of the Act is to provide the conditions for development of business and public organizations, competition stimulation, reduction of administrative duty and level of corruption. New legislation united diverse initiatives: as those which already successfully proved themselves in practice, so as innovations which were demanded for a long time by the business environment and adoption of which can considerably facilitate business operation conditions in Ukraine. What will change in the field of state registration of business?

New Vertical of Subjects of Business Registration

Extending the list of subjects of business registration is one of the main innovations of the Act. According to the new legislation, apart from the Ministry of Justice of Ukraine and its territorial bodies, the authorities in the sphere of state registration of legal entities and individual  entrepreneurs and public organizations will be granted to local authorities, local public administrations, notaries and accredited subjects. The Cabinet of Ministers of Ukraine still has to determine the procedure of accreditation and monitoring of compliance to the requirements of accreditation.

It should be noted that institutions of justice reserve the function of state registration of political parties, trade and creative unions, organizations of employers, separate divisions of foreign organizations, arbitration courts, public associations and their insignia.

By offering the specified initiative legislator provided transfer of part of services “for outsourcing” regarding state registration that will enable a rise in the quality of registration services, simplify access to the registration procedures, demonopolize the authority of state registrars.

The Act determines that notaries are vested with the powers of state registrars. And as notaries already have experience of carrying out registration functions and they have the necessary resource base, acquisition of new powers by them will not create certain collisions in the sphere of administrative services provision regarding registration of subjects of business. But so far the question regarding access for notaries to the Unified State Register and to the provisions of the contract and the registrar’s technical administrator is still open.

Also, according to Part 3 of Article 5 of the Act, the accredited subjects (legal entities of public law) who will carry out the functions of front offices (administrative services center) are vested with the powers of state registrars.

It’s worth paying attention to the fact that the Act does not define the legal status of the accredited subjects, conditions of their contract with other subjects of state registration or with the notary regarding their powers.

It should also be noted that for the start of work of new system of subjects of registration of legal entities and natural persons — entrepreneurs and public organizations transition period is necessary within which all disagreements should be eliminated and also develop and adopt relevant regulations as a basis for the further activity of new subjects of registration.

Business. It Must be Easy

New legislation considerably simplified the procedure for opening a business. Unlike many countries, primary registration of subjects of business in Ukraine is free of charge. The Act determines accurate and clear procedures, the list of documents mandatory for state registration is considerably reduced, as well as the term of its implementation — within 24 hours of receipt of registration documents (Article 26 of the Act).

Introduction by legislators of the exterritoriality principle is noteworthy, according to which registration actions will be carried out by subjects of state registration irrespective of the place of registration of the applicant throughout the Ukraine which will, in turn, improve the conditions of managing a business.

The introduction into law-enforcement practice in Ukraine of the Unified State Register (hereinafter — USR) which united the Unified State Register of Legal Entities and Individual Entrepreneurs, Unified License Register, Register of permit documents, Unified Register of Public Organizations and Register of Public Associations, Unified Register of Enterprises regarding which the proceeding of bankruptcy is initiated, is a continuation of European tendencies of easy opening of a business. In its turn, the procedure of the USR’s functioning is determined by the Ministry of Justice of Ukraine.

USR will simplify and unify registration procedure and will actually transfer the process of state registration to the on-line mode. In so doing, the status of consideration of such documents can be monitored in real time, and electronic interdepartmental cooperation between registrars and other government bodies will also be adjusted. Subjects of business are automatically registered with the Pension fund, State Fiscal Service and State Statistics Service.

From now on, each subject of a business will have their own personal office which will contain all information regarding the subject on an electronic services portal. Information held on paper will soon become rare documents. For example, an extract will be provided only in electronic format without being signed and sealed by the registrar.

It should be noted that startup enterprises will feel Law innovations as after submission of documents to the subject of state registration they will not have any constituent document, even the second copy of the Articles of Association, whose existence is not provided by legislation.

We will pay attention to the following innovations in the sphere of business registration: from now on the duty of annual representation of confirmation of data on a legal entity is cancelled (registration card on form No.6); the requirement of providing annual financial reporting in registration departments is cancelled; the form of registration cards is changed.

The procedure for suspension of consideration of documents of subjects of business has been  entered, which is the next innovation in the registration procedure. The exhaustive list of grounds for suspension of consideration of submitted documents is provided in Article 27 of the Act. Legislators also determined the term for correction of mistakes by the applicant and submission of missing documents; it is 15 calendar days.

Attempt of the legislator to avoid abuse of rights which are granted to the subjects of state registration is the development of regulations forbidding the carrying out of registration actions regarding themselves, their relatives or legal entities, the founder or participant of which is such person or with which he is in labor relations.

Simplification of Business Registration or Additional Opportunity for Raiding

The danger of raider encroachments is that raiders try to give their criminal attack a “legal” form. As a result, a robbery, in reality with extreme violence, resulting in the capture of property or an enterprise achieves the status of an economic or corporate conflict.

Raiding virtually always gains steam at the time of changes influencing the national economy that in turn, assumes changes the legislative base. Adoption of the Act On Simplification of Business Registration is, in general, a progressive step towards business structures. However,  at the same time, use of some of its regulations can entail negative consequences which will promote a rise in the number of raider attacks as introduction of new data by state registrars and issue of new documents of a legal entity gives grounds, and the opportunity, for raiders to seize control and the property of an enterprise.

It is worth paying attention to the fact that the specifics of the regulations contained in the Law which grant notaries the right to carry out state registration according to the principle of exterritoriality can create favorable circumstances for registration of amendments on the legal entity which contradict each other that afterwards can lead to an increase in the number of raider attacks.

Also, from now on anyone can examine the authorized documents of a legal entity using the portal of electronic services. However, such innovation is not favorable for everyone. A negative surprise can appear if once at the next entrance to a personal office, founders of legal entity “will not recognize” their Articles of Association, will not find themselves among the founders (participants) and will establish that the company belongs to other persons.

It should be noted that the more accurate and transparent the description of the corporate rights and duties of all subjects of business activity, rules of registration of amendments of corporate rights in state registration service, the lower the chances that raiders will have to receive forged documents on corporate rights.

As a conclusion, it should be noted that legislators are introducing European rules for carrying out business registration in Ukraine. Only time will tell how it will work, but for now the new version of the Law on state registration is, undoubtedly, a step forward on the path to reforming the registration procedure of enterprises and creates opportunities for Ukraine to become a leader of the rating of Doing business in the criterion of how easy it is to open a business.