Major changes in regulation of LLCs in Ukraine

Until recently, the outdated Ukrainian legislation concerning companies, in particular Limited liability companies, was obscure for foreign investors due to its excessive regulation and lack of possibilities for shareholders to control their relations between themselves and the company. Just to name a few, corporate agreements were not allowed or the possibility to increase the share capital only by way of additional contributions of the shareholders.

A. The new Law «On limited and additional liability companies», adopted on 6 February 2018, introduced a number of instrumental changes.

1. The Law sets out the minimum content requirements for the articles of association of a limited liability company, which compared to the current legislation provides much more discretion for the members. The mandatory content list is short and includes the following information:
2. Company’s full and short (if available) designations,
3. Corporate bodies, their competence and decision-making process, and
4. Procedures of adding and removing shareholders of a company.

At the same time, the number of mandatory law provisions which cannot be changed at the shareholders’ discretion has been reduced to a minimum.

B. When it comes to voting, the previous legislation provided for only simple and qualified majority during adoption of decisions. The new Law provides for three methods of voting, depending on the nature of the proposals to be adopted at the meeting:

1. Simple majority (50%+1 of the votes cast at the meeting);
2. Qualified majority (¾ of the total number of votes of all shareholders), and
3. Unanimous voting.

The shareholders are free to set diverging voting procedures for certain categories of issues, unless unanimous or qualified majority voting is mandatory by law.

C. Holding of the shareholders’ meeting. The Law provides for possibility for shareholders to submit proposals to the agenda, as well as decide on issues not included into the agenda. It is expressly provided, that the minutes shall be signed by the chairman of the meeting (or any other person authorized by the meeting). And if there is only one shareholder in LLC – the decisions shall be taken by such shareholder solely and formalized in written. And one more novelty for the shareholders’ meeting – no quorum is established.

D. After establishment of a LLC, shareholders are obliged to form the company’s charter capital in full within 6 months instead of 1 year following the registration, unless otherwise is provided by the company charter. In addition, the new Law makes it possible to increase the company’s charter capital not only by the additional contributions, but also by means of undistributed profit.

E. Other notable changes are as follows:

• Shareholders are now able to enter into shareholders’ agreements;
• Possibility to establish a supervisory board is clearly envisaged;
• Provisions on «interested-party transactions» and «material transactions» have been introduced;
• Debt-into-equity conversion is directly allowed. Shareholders can now make contributions to the authorized capital by offsetting claims against the Company;
• Maximum number of shareholders of a LLC is no longer restricted with 100 and is unlimited.